Germany

Secondary covered bonds spreads are grinding tighter as buyers faced with negative yields in the sovereign market drive short dated covered yields towards zero. While core jurisdictions wallow in a sea of demand, investors are still averse to peripheral paper, but the wide spread gap could cause Spanish and Italian spreads to bounce back, said bankers.

Italian issuers are braced for another round of covered bond rating cuts after Moody’s lowered Italy’s government bond rating on Friday. The last of the country’s double-A bonds will fall to single-A as a result, leading to harsher regulatory treatment and a reliance on credit investors, said analysts.

This week’s first ever Pfandbrief backed by aircraft mortgages has been warmly received. But amid the fanfare for the issuer, NordLB, there are concerns over the security of the assets involved that in turn are stoking debate over what assets should be eligible for covered bond funding.

NordLB launched the first ever aircraft Pfandbrief (Flugzeugpfandbrief) on Tuesday, pricing a twice oversubscribed five year deal at the tight end of guidance.

Münchener Hypothekenbank’s debut dollar benchmark surprised the market and astonished the issuer, which had only envisaged a small private placement. MuHyp’s next benchmark will be a euro trade after the summer break, but though it is not originating new dollar assets the borrower has not ruled out another public deal in that currency.

Münchener Hypothekenbank (MuHyp) will price its first benchmark dollar covered bond on Friday afternoon, launching the deal after receiving strong reverse enquiry from SSA and central bank buyers.

Bayerische Landesbank (Bayern LB) found strong international demand for its latest 10 year benchmark, which was priced flat to the borrower’s outstanding curve. The €500m trade completed Bayern LB’s 2012 covered bond funding plan, though the issuer’s determination to bring a long dated deal and push for tight pricing limited demand, said syndicate bankers.

Bayerische Landesbank (Bayern LB) launched its first euro benchmark covered bond in over a year on Wednesday, bringing a 10 year public sector backed Pfandbrief originally mandated in July 2011. The trade prioritised pricing over size and received less interest than recent German deals. At the less traditional end of the covered spectrum, Nykredit Realkredit opened books on a tap of a recently issued junior covered bond.

Deutsche Pfandbriefbank (Pbb) has told The Cover that it is planning to launch at least one more euro benchmark covered bond after the summer break. The borrower has already sold three €500m mortgage backed trades so far this year, and said it could turn to jumbo deals in the future.

Increasing reliance on secured issuance and the impact that this has on senior unsecured recoveries could be factored into ratings, Fitch said on Thursday, though it added that the increase in outstanding covered bond issuance is relatively stable for the time being.

Deutsche Pfandbriefbank (Pbb) on Wednesday priced a €500m mortgage backed trade flat to its curve for the second time in just over a month.

ASB Finance launched an inaugural €500m euro benchmark on Tuesday. Pricing was aggressive, said leads, though syndicate bankers away from the trade felt it offered a considerable premium over ASB’s Australian parent, Commonwealth Bank of Australia.