The Netherlands

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.

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.