Germany

The Association of German Pfandbrief Banks (vdp) has responded to Moody’s assertion that its latest transparency initiative has shortcomings. The rating agency said plans to factor sovereign risk into public sector cover pool calculations do not take into account duration risk. But the vdp claims its proposals are already more conservative than those suggested by Moody’s.

Despite long being lauded as one of the very few effective private sector solutions for wholesale mortgage funding, covered bonds are not quite so divorced from the state as they might seem. As the bank finance market evolves in Europe, is it possible that the implied state support seen in the most longstanding regime is, over time, replicated in other regimes?

Swedish banks head a group of possible covered bond issuers, despite resurgent volatility. The Swedes have largely stayed away from the euro market so far this year, opting instead to rely on domestic demand. But analysts still expect the need for diversification and name recognition among Swedish banks to yield euro benchmarks.

Moody’s has welcomed a proposal from the Association of German Pfandbrief Banks (vdp) to take account of peripheral sovereign risk in public sector backed cover pools by applying haircuts based on the probability of default.

After a flurry of trades from four jurisdictions during the covered bond market’s busiest week in months, the Spanish sovereign downgrade foiled hopes for further issuance on Thursday. But German Pfandbriefe issuers have thrived on volatility, while Caisse de Refinancement de l’Habitat has demonstrated the thirst for yield among European investors. As such the setback in core supply should be merely temporary.

Deutsche Hypothekenbank Hannover and Aareal Bank launched five year mortgage Pfandbriefe on Tuesday. Both deals were capped at €500m and both were priced at the tight end of revised guidance, as the wealth of domestic demand showed no signs of weakening.

DNB Boligkreditt got the covered bond market off to a flying start on Monday with a €1.5bn seven year benchmark deal. Norwegian peer Terra Boligkreditt has readied its own euro trade and could launch on Tuesday, while two German issuers have mandated for five year mortgage Pfandbriefe.

The recent run of Pfandbriefe looks set to continue, with at least two more German credits closely monitoring the market. Meanwhile, a rally in OATs combined with an enduring domestic bid mean the first French covered in two months could be only days away, said syndicate bankers.

Volatile markets have clearly helped drive the bid for all German assets — as was most conspicuous when Münchener Hypothekenbank issued its 10 year Pfandbrief this week.

Deutsche Bank delivered the week’s third German Pfandbrief benchmark on Thursday, matching Münchener Hypothekenbank’s record low coupon for a 10 year trade a day earlier. Together with HSH Nordbank’s trade on Wednesday, German credits have sold six euro deals in a row, and the pipeline of potential Pfandbrief is not yet exhausted, said syndicate bankers.

A phenomenal reception for three Pfandbrief benchmarks this week has raised hopes that fresh German trades will maintain primary momentum next week. Meanwhile, French sovereign and agency paper has tightened strongly in secondary.

Pfanbrief starved German accounts and international buyers fleeing to quality fell upon dual €500m no grow deals from Landesbank Baden-Württemberg (LBBW) and Deutsche Pfandbriefbank (pbb) on Thursday. A collective €3.4bn in orders across the two trades allowed negative and non-existent premiums respectively, with LBBW’s deal boasting the tightest spread for a euro covered bond benchmark in over a year.