Germany

The spotlight remains firmly on the Greek tragedy with bankers anxiously awaiting fresh developments in the hope that there may be some sort of reprieve. Issuers are well funded and can probably sit it out for now but the omens do not look promising. Bank traders say that selling pressure on the peripheral covered bond markets has continued unabated and, with many banks believed to be sitting on significant inventory, there is an increased risk of near term spread widening.

Germany’s ING-DiBa kept primary supply alive on Wednesday, pricing one of the tightest five year covered bonds of the year. As an inaugural Pfandbrief, Eu500m in size and five years in maturity, the trade was never likely to struggle. Syndicate officials expect no further issuance this week, however, as few borrowers can bring deals which boast similarly attractive qualities.

Abbey, Compagnie de Financement Foncier (CFF), Dexia Kommunalbank AG, Erste Bank, La Caixa and UniCredit all made presentations to UK based investors at an event sponsored by Crédit Agricole CIB this week. Whilst it was clear that many issuers are well advanced in their funding for this year, and seem to have plenty of liquidity to draw on, it is also clear that when the funding window re-opens, issuance is likely to take-off.

Syndicate officials are expecting at least one covered bond trade on Wednesday morning, providing the outcome of a vote of confidence in the Greek parliament is positive. ING-DiBa remains the best hope for issuance this week, though a French name could also make an appearance.

The covered bond market remained inactive on Monday. Though several issuers have deals to bring, the environment has not become any more receptive to issuance. Fears of contagion from Greece rule out peripheral supply, and one syndicate official on a prospective trade from a core name said he had advised delay.

The covered bond market was quiet on Thursday, though syndicate officials said there were several borrowers that would like to complete trades before the summer lull. Prospective issuers have ample reasons to wait given that a resolution of the situation in Greece appears elusive. However issuers in the UK, New Zealand and Germany will have finished roadshows by the week’s end, and Italian and French names are monitoring the market.

Demand from insurance companies and pension funds for covered bonds has increased this year, according to Barclays research, while interest from central banks and asset managers has fallen. Germany and Austria are the only regions where overall investor interest for covered bonds has decreased noticeably, though in some jurisdictions investors have participated far less in issuance from certain countries.

Westpac New Zealand became the second ever Kiwi bank to issue a euro covered bond when it priced a Eu1bn five year deal on Thursday. Fund managers and central banks snapped up the paper, seeing good value relative to core issuers, and took the opportunity to make investments away from European volatility. Investors will be eagerly anticipating further issuance out of New Zealand, with ANZ NZ next in the pipeline.

Borrowers from peripheral and core jurisdictions priced over Eu6bn worth of benchmark covered bonds across three currencies this week, which included inaugural deals from Italian and New Zealand issuers. Prospects for supply next week are similarly diverse, though volatility and European holidays may narrow the window for issuance.

Aareal on Tuesday priced its second Eu500m deal of this year, opting for a five year maturity. Buyer interest was not as forthcoming as for previous Aareal trades, but the final allocation was more diverse and with a larger proportion of non-German investors. This could be an indication that Aareal, as with other small core names, knows its usual lines are nearing exhaustion and the bank has no choice but to diversify its funding base.

Dealers report a strong bid in covered bonds this Wednesday morning, though some selling in the five to 10 year segment was welcomed as it helped cover shorts. Dexia Municipal Agency remains under pressure and with Bonos tightening, cédulas have underperformed, triggering some selling.

Germany’s Aareal Bank kicked off covered issuance this week with a triple-A Pfandbrief on Tuesday, while UniCredit mandated banks for a seven year OBG which was launched the same day.