Covered Bond & RMBS Comment – Primary market gaining traction

by: Joost Beaumont

  • Issuance of euro benchmark covered bonds increased last week…
  • …with issuance concentrated in the belly of the curve
  • Gross supply in May already exceeding redemptions
  • Busy week ahead, at least with four banks being on the road
  • Non-CBPP3 paper underperformed last week

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Covered-Bond-RMBS-Comment-15-May.pdf (210 KB)

Primary market gaining traction

The primary covered bond market gained traction last week. We saw strong supply as EUR 5.25bn was issued in benchmark covered bonds. Westpac issued EUR 1.5bn with a dual tranche deal (29% of the supply), while CFF, RBS, Hypo Vorarlberg and de Volksbank made up the rest. Issuance at the belly of the curve dominated, as 63% of the volume was in the 7y to 10y bucket.

This brings total issuance to EUR 7.5bn in May, which is already more than the EUR 4.75bn that was issued during May (full month) last year, while it also exceeds the EUR 5.25bn of redemptions. Year-to-date supply now stand at EUR 60bn (versus EUR 83bn in 2016 for a comparable period), compared to EUR 73bn of redemptions.

Full pipeline

The flow of new issues is likely to continue. No new deals were announced for today, but many issuers will hit the road. Hypo Tirol Bank will complete a roadshow today for a EUR 250mn (no grow) mortgage covered bond in the belly of the curve. So, this issuer is likely to come to the market this week.

Meanwhile, Sparebanken Sor Bologkreditt will meet investors this week to market a EUR 500mn (no grow) transaction (also in the belly of the curve). Furthermore, Rabobank will be on the road this week to market a debut dual tranche transaction, which might be launched next week (please read a detailed note here). Finally, Banco Comercial Portugues is planning to make a return to the covered bonds market soon. It will start marketing a benchmark covered bond in the belly of the curve from Tuesday onward.

Non-CBPP3 paper underperformed

Spreads of the iBoxx euro benchmark index tightened slightly last week, with Spanish names outperforming. However, non-CBPP3 paper, such as Australian, New Zealand, as well as Canadian names underperformed, with spreads ending the week slightly wider. This is probably due to profit taking by investors, as this paper has performed relatively well recently. We still remain overweight non-CBPP3 paper, given the spread pickup (albeit small) as well as the ‘taper protection’ that this paper offers.

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Macro Weekly – Will this US expansion break records for length

Financials Watch – French election positive for French banks

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