Germany

German ship financing banks have been roadshowing in the US to boost their Schiffspfandbriefe investor base but the industry is unlikely to attract a new investor base soon, said market participants.

Covered bond issuance in the first quarter of 2012 was the second busiest ever for the first quarter. Though euro-denominated issuance fell by 45%, this was offset by a large rise in volumes of other currencies such as sterling, dollars and Australian dollars.

The assets that public sector Pfandbrief issuers select as collateral have become more important, according to Moody’s. As concern around peripheral eurozone sovereigns mounts once again, the rating agency reported that some programmes have increased their exposure to peripheral countries and to assets in sub-investment-grade countries.

Investors are fed up with focusing too much on the strength of issuing banks to value covered bonds. Now they are demanding more details about the underlying assets. But baring all is not necessarily the solution for borrowers either.

HSH Nordbank made a strong return to covered bonds on Thursday, drawing such strong demand — over 100 accounts participated in the €500m no-grow trade — that leads closed books after only 35 minutes.

Standard and Poor’s brutal six notch downgrade of the Depfa ACS public sector backed covered bonds, from double A to triple B, matches the severity of downgrades that have been seen in several Spanish multi-Cédulas deals. But unlike those deals, this deal was issued by the Irish entity of a German parent bank.

WL Bank priced its first deal since May last year and the first 10 year Pfandbrief of the year. Despite coming at a tight spread, relative to other covered bond sectors, it sold out within an hour and was heavily oversubscribed.

The global covered bond market continues to look strong, with a trio of issuers collectively raising the equivalent of more than €4.5bn, on the back of more than €9bn in demand across two currencies. But whether the market’s euphoria can hold out until the end of this week, however, remains to be seen as doubts are starting to creep back in with Thursday’s Greek liability management cut off date fast approaching.

The performance of cover pools has deteriorated, Crédit Agricole research has found after examining Moody’s, Standard & Poor’s and Fitch’s data. But this is not because of worsening credit risk but rather because of market risk.

Deutsche Bank pulled in more than €2bn of orders for the third German Pfandbrief of 2012. Leads priced the €500m no grow trade at 22bp on Wednesday, making it the tightest trade of the year so far, and the bond tightened further in the secondary market on Thursday.

The tightest and widest transactions of 2012 were priced on Wednesday, with Bankia launching a two year Cédulas at 290bp over mid-swaps, while Deutsche Bank priced a blow-out seven year trade at 22bp over mid-swaps.

Tightening spreads and bulging order books since January have failed to lure German banks into issuance. The rate at which the banks are deleveraging and retreating from foreign markets has made financing through wholesale markets completely redundant. But they will still need to put their new balance sheets to work, and Fitch has questioned whether the domestic market is large enough to absorb this lending without mispricing.