Germany

ING helped restart the market once again on Monday, launching the first benchmark from core Europe in almost a month. Despite an unusual eight year tenor buyers flocked to take down fresh supply, placing €3.5bn in orders for only the fourth Dutch benchmark of 2012.

The covered bond market is gearing up to restart next week, said syndicate bankers, who expect at least two benchmark trades to hit the screens. German and Scandinavian borrowers are tipped as the most likely candidates to take advantage of squeezed secondary levels. But with no end to spread contraction in sight, the urge to wait and watch levels grind tighter could cause some borrowers to hold off.

After the drama and excitement of UniCredit pricing through BTPs, the European covered bond market has returned to normal — only to be outshone by senior unsecured, where three deals are on the way.

The Cover spoke to HVB’s Holger Oberfrank, head of flow and funding, and Thomas Neupert, head of public sector origination, about its issuance plans for this year, and the outlook for Pfandbriefe.

UniCredit drew a stellar reception for the first Italian benchmark in almost a year on Tuesday, with the vote of confidence for peripheral risk raising hopes for follow on trades from Italian and Spanish names.

Covered bonds are more stable, higher yielding and offer better protection than sovereign paper, according to Barclays analysts. But liquidity and security also drive investment decisions, and negative government bond yields show how much the market values both, an investor told The Cover.

An asset manager in Frankfurt tells The Cover about breaking the link between covered bonds and their respective sovereigns, investing in peripheral markets, and the problem with regulatory favouritism.

Not so long ago, it was commonly accepted that bank resolution regimes would hobble senior unsecured issuance. Unlike holders of fully protected covered bonds, which cannot be bailed in, senior noteholders faced the threat of haircuts in the event of bank insolvencies.

Deutsche Hypothekenbank became the second recent German issuer to answer domestic accounts clamouring for paper with a tightly priced tap on Wednesday. But with buyers making enquires on all core names across the curve, opportunistic extensions are an option for a wider range of names.

European covered bond issuers, along with senior unsecured financials and investment grade corporates, were this week presented with excellent funding conditions, despite a ratcheting-up of pressure on Spain and Italy in the early part of the week.

ABN Amro launched a €1.5bn seven year benchmark covered bond on Tuesday, building a book of over €4bn for the first Dutch trade since January. Pricing divided syndicate bankers away from the deal. But with the first jumbo transaction in three weeks ABN proved that the covered market remains primed for supply, and could urge other names to take advantage of a closing window.

Deutsche Pfandbriefbank (Pbb) on Monday returned to the covered bond market for the fourth time this year, tapping an outstanding seven year deal. Secondary demand has sent core spreads tighter across the board, and syndicate bankers expect more issuers to take advantage of an exceptionally attractive primary market.