Germany

Vorarlberger Landes- und Hypothekenbank (Vorarlberger Hypobank) has picked banks to manage its first euro benchmark covered bond, which it plans to launch in mid-April, a funding official at the issuer told The Cover.

Deutsche Pfandbriefbank (Pbb) got the covered bond market off to a strong start on Monday, shrugging off weakening sentiment to launch a seven year mortgage backed Pfandbrief.

HSH Nordbank became the second German borrower of the year to fund SME loans with a covered bond this week, after using a KfW guarantee to turn the loans into eligible public sector collateral. As German Pfandbrief law bars unguaranteed SME loans, this approach offers an alternative to structured issuance. But bankers and analysts are divided over its viability.

HSH Nordbank closed books on a three year public sector Pfandbrief on Wednesday, easily finding enough demand for a €500m no grow transaction, despite its exposure to the shipping industry, which put some buyers off, said bankers.

Overcollateralisation has a big influence on the ratings of covered bond but it is not a good guide to their resilience and rating stability, according to DZ Bank.

When is a covered bond not a covered bond? Commerzbank’s controversial SME structured deal generated much emotion at the IMN covered bond conference in London this week. In a show of hands, almost all delegates thought the issuer should not have been able to market it as a covered bond. The Cover looks into the reasons for their disapproval and considers the arguments for the defence. Whoever is right, Commerz has given the market a new headache.

Aareal Bank launched the third short dated floating rate Pfandbrief in the last week on Friday, after bank treasuries looking for safe haven paper approached the issuer. Several of Aareal’s peers are lining up longer dated benchmark deals, but a surge in Bund futures could put their plans on hold.

Aareal Bank launched the third short dated floating rate Pfandbrief in the last week on Friday, after bank treasuries looking for safe haven paper approached the issuer. Several of Aareal’s peers are lining up longer dated benchmark deals, but a surge in Bund futures could put their plans on hold.

Deutsche Pfandbriefbank tapped a recent floating rate mortgage backed covered bond for €150m on Wednesday, although fresh benchmark deals are unlikely in the wake of Italy’s election, said debt bankers. They fear the surge in volatility could close the issuance window for weeks. However, other bankers countered that strong core names would have no trouble bringing transactions.

Wednesday’s sterling deal from Bayerische Landesbank came as welcome relief to supply starved investors but the paucity of supply has also been particularly marked in the euro market, where issuance volumes are half of last year’s shrunken levels. The technical mismatch is helping to spur demand in the secondary market where Spanish deals are once again in vogue.

Bayerische Landesbank followed Stadshypotek on Wednesday morning by issuing a £200m sterling FRN, which provided it with slightly cheaper funding to euros — a market in which issuance has fallen to half of what it was at this point in 2012.

The ABS and covered bond worlds have come closer together after Fitch had to explain its rating methodology for Commerzbank's SME structured covered bond programme. The rating agency will apply covered bond criteria to the pioneering programme, even though the bonds will have ABS like features. The news follows an upgrade of Banca delle Marche’s covered bonds after they were cross-fertilised with structured finance technology.