The Netherlands

ING Bank offered buyers a rare bite of Dutch covered bond supply on Wednesday and launched the country’s first euro benchmark in nine months.

Dutch bankers have hit back at suggestions that the local regulator’s increased focus on encumbrance is behind a fall in covered bond issuance. The obsession with covered bond encumbrance does not give a true picture, they told The Cover this week.

High redemptions, combined with deleveraging and a drive towards deposit funding has put net first quarter covered bond supply in 2013 on track to hit record lows, said Barclays analysts on Thursday.

Fitch placed SNS Bank's mortgage covered bonds' AA+ rating on Rating Watch Evolving (RWE) on Wednesday, a day after revising its outlook on Netherlands from stable to negative. Despite this, SNS bank’s covered bonds have rallied strongly since last Friday and have the potential to perform further.

ING’s head of long term funding Martin Nijboer told The Cover the issuer’s inaugural dollar covered bond was an easy decision as there was a good window to pre-fund for 2013. The $1.5bn 10 year was a strong statement as a debut trade, but rivals in the market questioned whether it was priced too generously.

Standard & Poor’s has dealt a blow to the Dutch covered bond market by downgrading several of its banks’ issuer ratings, chiefly because of the country’s prolonged property market correction. But the move should only have a limited effect on the Dutch covered bond market, say analysts.

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.