Switzerland

The Swiss National Bank’s decision to dispense with the currency peg between the Swiss franc and euro is credit negative for Austrian covered bonds, said Moody’s on Monday. The agency identifies the pools of UniCredit Bank Austria, Vorarlberger Landes-und Hypothekenbank and Hypo Alpe Adria Bank as having the greatest exposure to Swiss franc assets.

Credit Suisse has become the first Issuer to change the terms of its covered bonds from a hard to a soft bullet maturity — on existing deals. The move, which puts investors at a disadvantage, shows they cannot rely on original terms remaining in place through the life of a deal.

Credit Suisse has published a consent solicitation in which it proposes changing the maturity of its outstanding covered bonds from a hard bullet to a soft bullet. Though the market does not price for this difference, the issuer is willing to pay investors five cents to agree to the change.

Credit Suisse (CS) opened books on Thursday for its second seven year euro deal of the year. Leads ascribed the 3bp pickup offered against Wednesday’s Bank of Nova Scotia (BNS) deal to the Swiss bank’s lack of LCR eligibility.

Credit Suisse mandated leads for a euro benchmark on Wednesday. After roadshowing earlier this week, Santander UK’s subsidiary Abbey has held back from the market following the tragic news that the banking group’s executive chairman passed away on Tuesday.

On Thursday UBS came to market with its first covered bond since January 2012, but the third Swiss deal of the year following Credit Suisse, which issued in January and March. UBS aimed to capitalise on market momentum created by the Lloyds trade on Wednesday which was the same size, tenor and rating.

Covered bonds are a more important term funding tool than senior unsecured, because of bail-in concerns, Rolf Enderli, head of group treasury at Credit Suisse, told The Cover on Thursday. The issuer may follow Lloyds Bank and bolster subordinate funding by exchanging ECNs with regulatory compliant additional tier one debt, said bankers.

Credit Suisse enjoyed a stellar response for its second covered bond this year, enabling it to issue €1.75bn, the biggest such deal of 2014. Seemingly generous pricing and the issuer’s strong name spurred demand.

Initial price thoughts are a useful price discovery tool in illiquid markets. But in core markets where liquidity is high, they can obfuscate how successful a deal has been. It is time to consider doing away with them where possible.

Thursday’s suite of covered bond issues from Australia and Switzerland underscored a growing impression among bankers that pricing core transactions is taking more forethought and effort. Whereas deals were invariably easy to price last year, demand seems to have become more finite. Books are taking longer to build as investors need more cajoling to meet issuers’ funding targets, in stark contrast to peripheral credits.

Kiwibank sold its debut Swiss franc covered bond on Monday morning, drawing healthy demand at a price that tightened slightly from guidance. A lack of competing supply, along with an attractive spread over domestic Pfandbrief issuers, allowed the leads to close books quickly on the oversubscribed trade.

UBS and Swedbank closed dollar benchmarks this week, pricing their deals well inside where they could have funded in euros. Demand in the dollar market far outstrips supply, and the eager investor base should help draw more borrowers looking to take advantage of the arbitrage.