Germany

The debate around cover pool transparency has once again reared its head after M&G Investments warned that “not all covered bonds are alike and while some are exceptionally strong, the opaque structure of many others could harbour unwelcome surprises for investors.”

Despite widespread market volatility and risk aversion, the covered market has remained active, though distinctly muted. Berlin Hannoversche Hypothekenbank sold a mortgage backed jumbo Pfandbrief transaction on Tuesday, and on Wednesday taps from French issuers CM-CIC and CRH were launched.

Uncertainty as to the full effect of Japan’s earthquake has prompted widespread risk aversion among investors, and allowed Berlin Hannoversche Hypothekenbank to have the market to itself on Tuesday.

The covered bond market is hoping a national champion will soon bring the first Portuguese deal of the year, following the sovereign’s successful bond auction on Tuesday. Elsewhere, Spain’s La Caixa mandated banks for its deal and LBBW is in the market with a dollar benchmark. Meanwhile, the pricing of two German deals on Tuesday went as smoothly as anticipated.

The effect of impending regulation on covered bonds was a central theme of the 5th LLBW European Covered Bond Forum, in Mainz, Germany, last Friday.

The primary market has picked up, with two deals emerging and one pricing. Demand is robust and there is good scope for further issuance, say bankers. Deutsche Postbank opened and closed books on Tuesday morning for a Eu1bn mortgage backed 10-year Pfandbrief while Kommunalkredit Austria looked set to price a Eu500m five year later in the day.

Secondary market activity has picked up across the board with bankers reporting decent interest in France the UK long end, Germany and, most importantly, Spain.

After a slow Wednesday, the European primary market aggressively picked up pace on Thursday with a range of seven deals from six jurisdictions was announced. Many have gone live and all appear to have been readily digested –in large part reflecting the constructive underlying tone to credit markets.

The primary market for European bank issued covered bonds appears to be gently slowing with just one deal from France’s Dexia MA pricing yesterday and another from Germany’s Aareal closing books at midday. In contrast a number of transactions are in the works from Canadian and Australian banks across a range of currencies –inaugural deals from new issuers and several rumours of others.

Moody’s expects negative rating actions on covered bonds to substantially outnumber any positive actions in the year ahead, due principally to weakness in the sovereign and banking sectors.

BayernLB yesterday (Monday) tapped the covered bond market for a Eu1bn public sector backed Pfandbrief via joint leads BayernLB, Crédit Agricole, DZ Bank HSBC and SG. The 2.75% July 2016 priced in line with mid swaps plus 12bp area guidance on a modestly oversubscribed order book and particularly benefited from strong foreign investor demand.

After a busy close to last week, covered bond activity has followed through this week with Abbey, Dexia MA and Westpac announcing deals while active bookbuilding commenced on Abbey, Banco Populare and Bayern LB.