Nordics

DNB Nor and Lloyds came to market on Wednesday with five year offerings that enjoyed a healthy oversubscription. German investors and bank treasuries drove the trades for the non-eurozone credits, enabling both to price at the tight end of guidance. But in terms of spread, the difference of nearly 120bp showed that the similarities ended there.

The covered bond primary market has opened strongly with a trio of top tier names from core jurisdictions collectively raising around €4.5bn on comfortably oversubscribed books. A further seven deals have been mandated for issuance in the near future. This impressive showing is to be expected given liquidity is technically strong. Yet big challenges lie ahead, specifically for peripheral markets — where borrowers remain shut out.

The ECB’s unprecedented refinancing operation may hit covered bond supply at the short-end of the curve, but medium and long-term issuance — the mainstay of the covered bond market — could benefit from greater confidence in banks’ health, bankers told The Cover.

Euro benchmark supply will drop in 2012, covered bond analysts predict, despite the product having become the cornerstone of bank funding. Rarely have analysts’ expectations diverged so far, with issuance estimates ranging from €120bn-€190bn.

Markets stabilised on Tuesday morning following S&P’s announcement that it may cut sovereign ratings across the eurozone, ending three days of sovereign tightening. Overall the tone remains constructive, according to covered bond traders, with better buying in French and peripheral covered bonds. But with only a couple of weeks of trading to go before year end, and covered bond spreads not following sovereigns tighter, issuers are still most likely to wait for an opportunity in January.

Realkredit Danmark looks set to secure lower interest rates next year on adjustable rate mortgages after a successful week of bond auctions. Foreign investors have been marginally more active than last year in the bond sales, according to Danish brokers on the deal, confirming that Denmark retains safe haven status. Nykredit started its refinancing sale on Tuesday and will hope to emulate Realkredit's success.

Moody’s has placed Aktia Real Estate Mortgage Bank’s covered bonds on review for downgrade after taking the same action on the bank’s A1 senior rating, partly due to its reliance on covered bonds as a funding tool.

Realkredit Denmark kicked off the Danish auction season on Monday, with sales in both euros and Danish kroner.

Sparebank 1 Boligkreditt plumbed the safe haven bid for Norwegian assets, braving turbulent markets to issue a €1bn five year, which was priced at the tight end of guidance with a modest new issue premium.

Moody’s cut SBAB’s issuer rating from A1 to A2 on Wednesday, because of challenges to the bank’s standalone creditworthiness due to low profitability, a concentrated and unseasoned loan book, and an almost total reliance on market funding.

Peripheral covered bonds tightened against government debt on Monday, undoing sovereign outperformance following last Thursday’s rally. Bid offer spreads continued to widen across the board as participants remain cautious ahead of purchase programme details.

Stress in bank funding markets, exposure to troubled eurozone sovereign bond markets and moves away from implicit government support have affected the creditworthiness of many global banks. But Standard & Poor’s approach to covered bond ratings means they should remain resilient compared to other agencies.