Germany

Münchener Hypothekenbank opened books with guidance on its €500m July 2028 at 15bp-17bp over mid-swaps on Thursday through BNP Paribas, BayernLB, DZ Bank, LBBW, Nord/LB and WGZ Bank. The fact that the deal was priced at the wide end of guidance, relied on lead orders and was barely sold outside Germany suggested a lacklustre reception.

The primary market sprang back to life on Thursday as two issuers launched benchmarks and a third tapped in benchmark size. But after recent volatility the syndications were not straightforward and there was a lot of price sensitivity in the books. The curious decision to supply at the long end made them even more of a challenge and the fact that two just scraped by, with one being downsized, suggested issuers have been slow to acknowledge the change in market conditions.

German Pfandbriefe have a strong buffer against losses if a borrower defaults, Moody’s said on Monday. Despite a continued rise in German house prices, the German Pfandbrief Act puts a conservative cap on the value of mortgage-backed loan collateral backing covered bonds, the agency said.

Three German borrowers issued benchmark covered bond deals this week with variable results. The transactions illustrated that German investors have become more discerning since May 22 when Federal Reserve chairman Ben Bernanke revealed that he was considering scaling down the Fed’s bond-buying programme.

Aareal Bank priced the covered bond market’s fourth Pfandbrief in a row in on Wednesday. It was unable to tighten pricing from guidance but drew enough demand for its €500m no-grow deal.

Commerzbank plans to be a regular public sector Pfandbrief issuer following its inaugural deal this week and it is working on a new mortgage backed programme, it told The Cover on Wednesday.

Commerzbank priced its inaugural public sector benchmark covered bond on Tuesday. The latest issue was another five year, after Aktia Bank and Helaba broke the drought in that maturity on Monday. Despite investors becoming more risk averse, funding officials at Aktia and Helaba told The Cover on Tuesday that the five year was their choice of tenor and said this was not dictated by market conditions.

Covered bonds backed by loans to small and medium-sized enterprises (SMEs) are gaining traction as a funding tool for European banks and could soon become a feature in Italy, Spain and France, according to Moody’s.

Cover pool encumbrance was steady last year versus the previous year, Fitch said on Thursday. The most stable levels were among the most encumbered institutions, where covered bonds have made up a large share of their financing for a long time.

Deutsche Hypothekenbank took advantage of a ratings lift from Moody’s to launch a €500m seven year mortgage Pfandbrief into a quiet primary market on Monday, despite the uncertain macro-economic backdrop which has caused fixed income volatility.

The covered bond pipeline is building with several transactions rumoured, a New Zealand bank on the road and a German issuer on Friday mandating banks for a trade next week.

Holidays in Germany and the UK next week shrink the issuance window but covered bond bankers still expect benchmark deals. A seven year tenor makes for simple execution, but Deutsche Pfandbriefbank’s (Pbb) 15 year bond has captured issuers’ imaginations, said syndicate officials.