Germany

Eurohypo will price a benchmark mortgage backed Pfandbrief later on Thursday, having attracted three times as many investors as its last trade, for a transaction three times the size.

Bayerische Landesbank began taking indications of interest for a benchmark public sector Pfandbrief, expected to be priced on Thursday, which could end the mysterious drought in the covered market.

Struggling German bank, WestLB is lining up the sale of its pfandbrief issuing subsidiary, West Immo, to US investment firm Apollo Investment Management. Covered bond analysts suspect the sale will have a negative impact on the ratings of West Immo’s Pfandbrief but the sale is more likely to be a positive for WestLB itself. In any case, West Immo’s covered bonds, which have tightened over the last month, remain well supported.

Ratings uplifts for senior long-term debt issued by German Landesbanks could be a thing of the past. Moody’s research suggests the support structures for Landesbanks in distressed situations are not the same in a Basel III, post-crisis world. As a result, the covered bonds issued by some Landesbanks could come under rating pressure.

German banks are further reducing cover pool exposure in peripheral European jurisdictions as concerns escalate over the possibility of sovereign debt restructuring.

Secondary trading has paused for breath lately, but there are still good pockets of liquidity and interest – specifically for French, UK and to a lesser extent Dutch and Scandinavian deals. The primary market could be due another slow week though a French deal is highly likely, with Société Générale tipped as a probable candidate. UK issuers are looking at the dollar market but there is speculation that one is looking at sterling.

Though primary supply slowed on Thursday the success of twin Eu1bn five year deals from WL Bank and Dexia on Wednesday proves the market remains receptive. Germany’s WL Bank convinced more than 100 accounts to participate in a no grown benchmark trade on Wednesday, which was well received by domestic and foreign investors.

Primary market activity restarted on Wednesday, with WL Bank launching a Eu1bn five year deal. An infrequent top tier issuer, the borrower follows a recent trend in the covered market towards well received supply from rare high quality names.

Market participants anticipate two new issues on Wednesday, though the primary market remained quiet on Tuesday. WL Bank mandated for a euro mortgage backed transaction with a five year maturity, and Dexia Municipal Agency is expected to bring its public sector backed Obligations Foncièrs after publishing its results on Wednesday morning.

Amid growing concern over peripheral euro sovereigns, covered bond analysts are focusing on the exposure to the troubled periphery of public sector cover pools in core jurisdictions.

The drive for a minimum covered bond transparency standard looks set to continue for a while yet. After the European Covered Bond Council met the ECB in Frankfurt on April 26, the technical issues working group is due to meet on May 27. They will present a refined list to the ECBC’s steering committee which is looking for a middle way that appeases investors, the ECB and issuers. For the UK market, collateral transparency is unlikely to be a problem, but misguided views on what happens after a UK issuer’s insolvency illustrates opacity is still an issue

Primary market activity was confined to a lone mandate from Dexia Municipal Agency on Monday, though issuers across core Europe are watching the market closely, said syndicate officials.