Covered Bond & RMBS Comment – France topping supply table

by: Joost Beaumont , Lea Riives

  • EUR 2bn of euro benchmark covered bonds were issued last week
  • Year-to-date, most issuance came from France, Germany to catch up in H2
  • BayernLB and Mortgage Society of Finland expected this week…
  • …while BNZ, Bank of Queensland, and Leeds Building Society on the road
  • Periphery and non-CBPP3 paper slightly underperformed last week
  • This probably reflects switches into (semi) core paper

DISCLAIMER: This report has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead. This report is marketing communication and not investment research and is intended for professional and eligible clients only.

Covered-Bond-RMBS-Comment-19-June.pdf (303 KB)

EUR 2bn issued last week

The primary covered bond market ended last week on a soft note, as there were no new deals on Thursday and Friday. In total, we saw three euro benchmark transactions, with aggregate volume of EUR 2bn. This took year-to-date issuance to EUR 71bn. Demand for all but one deal was strong despite that new issue premiums paid were only modest. This reflects that new issue conditions still seem favourable.

France leading supply tables

So far this year, the majority of euro benchmark covered bond supply stems from France (24%) and the Nordics (19%), while Germany and non-European issuers make up 14% and 10%, respectively. Looking forward, we expect most activity from German banks, while Canadian and Spanish bank are likely to step up issuance as well.

Deal statistics SEB and La Banque Postale

The deal statistics of last week’s deal of SEB (i.e. the SEB 0 ¼ 06/20/24) showed that 59% was allocated to German/Austrian investors, while 16% went to France, 8% to the Nordics, and 7% both to the Benelux and Asia. The investor breakdown shows that banks were allocated 44%, asset managers 30%, and central banks/official institutions 17%.

Meanwhile, the deal statistics of the new 10y of La Banque Postale SFH showed that 35% was allocated to fund managers, and 34% to banks, with central banks/official institutions having a 29% share. Investors were predominantly from Germany/Austria (40%), France (32%), Asia and the Benelux (7% each), Nordics (6%), and Southern Europe (5%).

Two deals expected this week

This week, at least two deals are expected to be launched, as Bayerische Landesbank as well as the Mortgage Society of Finland concluded roadshows last week. BayernLB was marketing a senior unsecured and/or covered bond deal in the UK, while the Mortgage Society of Finland has planned to launch a EUR 250mn 7y deal.

Three banks on the road

Furthermore, the Bank of Queensland and BNZ International, will be on the road this week to market euro benchmark covered bond deals (and in case of Bank of Queensland, the first conditional pass-through from Australia). They will be joined by Leeds Building Society, which is planning a EUR 500mn transaction with an intermediate tenor. Finally, Kommunalkredit Austria is also scheduled to meet investors soon about a social public sector Pfandbrief.

Spreads widened in periphery and non-CBPP3 paper

Last week, spreads of the iBoxx euro benchmark covered bond index widened slightly, with peripheral names as well as non-paper slightly underperforming. This probably related to the fact that spread pickup of the periphery, and Spain in particular, versus the (semi) core is at relatively low levels. This makes a switch out of the periphery into the (semi) core worth considering, given that peripheral names will be most vulnerable to tapering of CBPP3.

On Friday, we saw small buyers of German Pfandbriefe, as well as French paper in the longer-end.

 Other news:

* Bloomberg reported that the Basel Committee for Banking Supervision had made further progress on the update for the Basel rules, and thatt on setting output floors especially. But this also meant that conversations will drag on after summer.

* Fitch affirmed the AAA ratings of the covered bond programmes of Sparebank 1 Boligkreditt and Sandnes Sparebank Boligkreditt.


Other recent publications:

Financials Watch – Italian banks to face a struggle to escape

Macro Weekly – The reappearance of Goldilocks

Global Daily – Dutch political parties back to the drawing board

Financials Watch – Banco Popular wiped out in Santander sale

Eurozone Watch – Target2 balances a ticking time bomb?