Germany

With the primary market shut to new issues tap dancing looks set to come back into fashion. Dexia Municipal Agency and Münchener Hypothekenbank have led the revival over the last week, with both increasing outstanding public sector deals.

With the primary market shut again after ING wriggled through a brief opening last week, the covered bond market has been casting about for likely candidates to re-open it after the Easter holiday. The wide range of mandates outstanding — some of them from last year — is proving an obstacle to identifying the market’s white knight.

The strength of an issuer’s domestic investor base has emerged as a key determinant of covered bond spreads since the crisis began last summer. Those that benefit have been able to relax, while those reliant on foreign investors have redoubled their efforts to penetrate new pockets of money.

The spread between obligations foncières and other French covered bonds has underlined the power of legislation, and the UK hopes its own new framework will pay off. But recent developments suggest a more complicated picture. The Canadian regulator, for one, has yet to be won over, and structured issuance in Germany has finally emerged.

The German financial supervisory authority, BaFin, said at last Thursday’s European Covered Bond Council plenary session that it is very much against the introduction of aircraft Pfandbriefe, according to Deutsche Bank research.

SEB AG priced its Eu1bn two year public sector Pfandbrief at 7bp through mid-swaps this morning, but some syndicate officials involved warned that similar issuers should not follow the bank’s example of using the retention format, particularly if the turmoil elsewhere in the covered bond market finally infects the German product.

SEB AG popped up with a Eu1bn two year public sector Pfandbrief today (Thursday), showing that German issuers can even go so far as to launch retention deals in today’s market. Meanwhile, Berlin-Hannoversche Hypothekenbank’s final allocations showed that two thirds of its paper was placed domestically.

Berlin-Hannoversche Hypothekenbank shrugged off the turbulent markets to build an oversubscribed book for its mortgage backed jumbo this morning, with March looking set to follow February’s picture of a primary market where Germany and the top French names hold sway.

With expectations of Spanish and UK supply for 2008 having been slashed, the market looks set to rely on three areas to support high supply forecasts for the year: France, Germany and new entrants. The Cover asked analysts whether the first two months of the year have led to any revisions to their estimates for the market in general and the two core jurisdictions in particular.

The covered bond market endured a rocky morning today, with spreads widening alongside heavy falls in equities, giving the European Covered Bond Council further food for thought ahead of its meetings in Milan later this week. But Germany could once again prove the exception in the primary market.

In light of press reports on the Association of German Pfandbrief Banks’ views on potential changes to market-making, and ahead of next week’s European Covered Bond Council meetings where the Packmohr Plan will be centre stage, The Cover spoke exclusively to Louis Hagen about the vdp’s stance.

Barclays Capital’s analysts have slashed their forecasts for benchmark issuance in 2008 by Eu40bn, from Eu190bn to Eu150bn, lower than any bank was expecting only two months ago.