Germany

Deutsche Bank brought the covered bond market to the brink of sub-Euribor pricing on Friday, issuing a €750m eight year mortgage Pfandbrief just a single basis point above mid-swaps. With the secondary squeeze grinding onwards syndicate bankers said it was only a matter of time until the Euribor barrier was broken.

Moody's has assigned a top rating to Landesbank Berlin’s (LBB) Daheim Series 1-2012 structured covered bond, a deal notable for its lack of a Pfandbrief label.

SSA and corporate markets were busy on Tuesday, keeping the primary covered bond quiet. But issuance should improve this week as investors filter back from holiday, said bankers, though they warned that as spreads have tightened a long way in a short time the market may widen after the initial flurry of deals.

Germany’s Schuldschein product could be set to develop into a new area, with issuers calling for a secured format.

Amendments, adopted this week, to Germany’s Pfandbrief Act that increase transparency are positive for investors but there will be no ratings impact from the Article 28 changes, said Fitch.

This week’s two covered bond deals have helped increased activity in secondary markets, traders told The Cover. There has been selling pressure in the senior unsecured but this has only translated to more mixed flow in covered bonds.

Covered bond issuers proved reluctant to follow ING’s lead and launch trades on Tuesday, as activity shifted to the senior market. But given the strong reception for secured issuance syndicate bankers remain confident of supply later in the week.

ING helped restart the market once again on Monday, launching the first benchmark from core Europe in almost a month. Despite an unusual eight year tenor buyers flocked to take down fresh supply, placing €3.5bn in orders for only the fourth Dutch benchmark of 2012.

The covered bond market is gearing up to restart next week, said syndicate bankers, who expect at least two benchmark trades to hit the screens. German and Scandinavian borrowers are tipped as the most likely candidates to take advantage of squeezed secondary levels. But with no end to spread contraction in sight, the urge to wait and watch levels grind tighter could cause some borrowers to hold off.

After the drama and excitement of UniCredit pricing through BTPs, the European covered bond market has returned to normal — only to be outshone by senior unsecured, where three deals are on the way.

The Cover spoke to HVB’s Holger Oberfrank, head of flow and funding, and Thomas Neupert, head of public sector origination, about its issuance plans for this year, and the outlook for Pfandbriefe.

UniCredit drew a stellar reception for the first Italian benchmark in almost a year on Tuesday, with the vote of confidence for peripheral risk raising hopes for follow on trades from Italian and Spanish names.