Ireland

Bank of Ireland Mortgage Bank opened books for a 3.5 year covered bond on Wednesday after mandating leads a day earlier. The deal took advantage of a strong performance in Irish bonds in the wake of improving economic fundamentals, and was the tightest spread for an Irish issuer since late 2010 when Ireland accepted a €85bn sovereign bail-out.

There were fears that investors had hit their country limits for Ireland earlier this month, when AIB Mortgage Bank’s five year covered bond drew a lukewarm response. But Bank of Ireland disproved this on Wednesday by pulling in a big oversubscription for the longest maturing Irish covered bond issue since the sovereign crisis.

Credit Mutuel CIC and AIB Mortgage Bank both launched covered bonds on Tuesday. The French transaction offered a larger new issue premium and attracted greater demand, but this came from a much narrower range of investors than the Irish deal, which larger investors spurned due to country limits.

Bankers reported on Thursday that there has been barely any movement in Hypo Real Estate Holding bonds since it announced on Monday that it would start looking for a buyer for its Depfa Bank plc subsidiary, thereby fulfilling the European Commission’s conditions for its earlier bail-out.

The subject of SME-backed covered bonds continues to provoke a sharp division of opinion within the industry. And it was a lively topic at the annual covered bond investor conference, held on Thursday in Frankfurt.

Sparkasse KölnBonn is set to announce a deal in the belly of the curve, somewhere in the region of five years, bankers told The Cover on Monday. Other issuers, possibly from Europe’s periphery, are also considering deals, said bankers, after further strong performance in the secondary market.

Since UniCredit’s groundbreaking covered bond deal last year, a plethora of issuers have priced inside their sovereign. This new financial order has led to a re-examination of how covered bonds are priced and whether sovereign risk has much bearing on covered spreads anymore.

Core and peripheral borrowers are waiting for a better market before bringing benchmark covered bonds. Safe-haven names are traditionally first to take advantage of returning stability. But southern European borrowers, which offer higher yields, juicers spreads and are less flexible over pricing, will find execution easier, said bankers.

Bank of Ireland priced a hugely successful €500m five year transaction on Friday, bringing its longest benchmark covered bond in over three years and radically repricing its curve relative to the Irish sovereign.

The Irish sovereign’s successful 10 year benchmark has paved the way for the country’s covered bond issuers to push out their curves and take advantage of investors’ thirst for yield, said syndicate bankers on Thursday.

Issuers looking for rehabilitation in the capital markets and wanting to wean themselves off central bank funding must be careful to ensure they issue strategic deals that have a high chance of performing. This should lower their long term cost of funding and enable greater market access.

Allied Irish Bank (AIB) has priced its first covered bond since the crisis. Vocal investors, who had demanded a wider spread were compelled to cave in to blistering demand and, rather than cut their orders, they were forced to inflate them.