Germany

Caisse de Refinancement de l’Habitat was the first covered bond issuer out of the traps on Tuesday, printing a €2bn 10-1/2 year deal that was driven from the outset by yield-hungry German investors.

Australia’s big four banks will look to make euro covered bond debuts early in 2012 after two underwhelming forays into the dollar market in November and a privately placed Norwegian krone transaction in early December.

Singled out for special treatment by European regulatory initiatives, covered bonds were the funding tool of choice for the region’s banks in 2011. But an escalating Eurozone crisis meant the record-breaking market entered 2012 relying on state support.

Eusebio Garre has decided to leave his position as head of funding at Deutsche Postbank, ending a 15 year stint at the bank.

In further signs that the covered bond triple-A world is shrinking, Moody’s has downgraded HSH Nordbank and Deutsche Kreditbank’s (DKB) public-sector and mortgage Pfandbriefe. Dexia Municipal Agency’s covered bonds have also lost their triple-A rating, following Moody’s downgrade of Dexia Credit Local’s issuer rating.

Euro benchmark supply will drop in 2012, covered bond analysts predict, despite the product having become the cornerstone of bank funding. Rarely have analysts’ expectations diverged so far, with issuance estimates ranging from €120bn-€190bn.

Citi has lost one of its covered bond specialists, leaving the firm’s FIG team to take responsibility for the secured funding product. The move comes amid suggestions that other banks could look to do the same in order to reflect the covered bond market’s shift from being a rates product to a more credit-orientated instrument.

Covered bonds will become an increasingly important bank finance tool in 2012, but their growing stature will not offset a continued downward ratings migration, Moody’s said in its 2012 outlook. The sovereign debt crisis will heap more pressure on issuer ratings and increase refinancing risk, particularly in Italy and Spain but also in core Europe.

Covered bonds will continue to play a prominent part in investor portfolios next year, according to a survey by Natixis. More than 80% of investors also expressed interest in structured covered bonds, though buy-siders away from the survey reckon the level of demand may be overstated, as given the choice buyers will prefer traditional covered bonds.

Markets stabilised on Tuesday morning following S&P’s announcement that it may cut sovereign ratings across the eurozone, ending three days of sovereign tightening. Overall the tone remains constructive, according to covered bond traders, with better buying in French and peripheral covered bonds. But with only a couple of weeks of trading to go before year end, and covered bond spreads not following sovereigns tighter, issuers are still most likely to wait for an opportunity in January.

Commerzbank will head a number of German banks issuing structured covered bonds next year, market conditions permitting, as momentum gathers in the product’s development.

The German Association of Pfandbrief Banks (VDP) is set to launch its secondary market transparency initiative in the new year. It has been piloting the scheme for two months, securing daily price quotes for jumbo Pfandrbriefe from market makers at 12 banks.