The Netherlands

SNS Bank’s covered bonds have been downgraded, but remain firmly above the increasingly populated and more relevant double-A minus rating threshold. Moreover, with a collateral score that beats many top German and Norwegian issuers, alongside a recently enhanced programme that has Rabobank as the swap provider — its bonds offer tremendous relative value.

Core covered bonds are performing poorly, with low coupons putting investors off, according to Deutsche Bank analysts. Higher yielding peripheral paper could benefit as a result, but the prospect for fresh benchmark trades from southern Europe remains uncertain.

SNS Bank returned to the covered bond market on Thursday for the first time in almost two years, having aborted a deal earlier in the year. The issuer enjoyed a strong reception for its second attempt at a €1bn five year trade, which offered a double digit new issue premium and a huge pick up over Dutch peers ABN Amro and ING.

This week’s two covered bond deals have helped increased activity in secondary markets, traders told The Cover. There has been selling pressure in the senior unsecured but this has only translated to more mixed flow in covered bonds.

ING helped restart the market once again on Monday, launching the first benchmark from core Europe in almost a month. Despite an unusual eight year tenor buyers flocked to take down fresh supply, placing €3.5bn in orders for only the fourth Dutch benchmark of 2012.

European covered bond issuers, along with senior unsecured financials and investment grade corporates, were this week presented with excellent funding conditions, despite a ratcheting-up of pressure on Spain and Italy in the early part of the week.

The covered bond market has remained active into late July and syndicate bankers say conditions are still good for further benchmark deals in the wake of ABN Amro’s success this week. With spreads returning to 2010 levels ABN chose to bring forward a jumbo deal originally scheduled for August. But as the macro outlook deteriorates, issuers cannot be sure that the secondary rally will survive the summer break.

ABN Amro launched a €1.5bn seven year benchmark covered bond on Tuesday, building a book of over €4bn for the first Dutch trade since January. Pricing divided syndicate bankers away from the deal. But with the first jumbo transaction in three weeks ABN proved that the covered market remains primed for supply, and could urge other names to take advantage of a closing window.

The senior market took centre stage again on Tuesday, dissuading covered issuers from competing with another trio of unsecured trades after Westpac’s slow bookbuild on Monday. The Australian issuer closed the spread gap with its Nordic peers, but found demand lacklustre compared with earlier Australian benchmarks.

There has been plenty of interest in core and even peripheral names in the secondary market this week, especially at the long end, where investors have been tempted by juicy Spanish yields. A briefly negative basis in covered versus CDS spurred interest.

Moody’s cut two Dutch covered bond programmes on Friday after taking action on five Dutch banking groups earlier the same morning. Issuers’ large mortgage books and reliance on wholesale funding made them vulnerable in a poor market environment, it said. Meanwhile, analysts expect house prices and house sales to continue their decline.

Germany’s Helaba broke ranks with cautious covered bond issuers on Tuesday to launch the first euro benchmark trade for two weeks. The rare borrower found strong demand for a €1bn public sector backed transaction, and another deal out of core Europe is expected on Wednesday, said syndicate bankers.