Covered Bond & RMBS Comment – German building society upsized deal

by: Joost Beaumont

  • Demand for debut 8y deal of Wuestenrot Bausparkasse was strong…
  • …allowing the issuer to increase the size of the deal to EUR 300mn
  • It offered an attractive spread versus 8y German benchmark Pfandbriefe
  • The deal statistics showed that 81% was allocated to German investors
  • DBS Bank also sold largest part of last week’s 7y deal to German investors
  • Banks bought less, probably as bond is not accepted as collateral at ECB
  • Thanksgiving might limit issuance in rest of week, so deal flow expected to continue next week

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-23-November.pdf (207 KB)

Wuestenrot Bausparkasse increased size of first 8y mortgage Pfandbrief

Wuestenrot Bausparkasse made a solid entrance to the covered bond market. It was the first German building society that issued a mortgage Pfandbrief, and probably more will follow after yesterday’s deal. The issuer intended to sell a EUR 250mn 8y mortgage Pfandbrief, but strong demand allowed it to increase the deal size to EUR 300mn. In the end, 33 investors put in orders worth EUR 550mn, while the deal was priced at ms -10bps. This offered an interesting pickup versus other 8y benchmark Pfandbriefe, which are trading at around        ms -mid/high 10s. The spread pickup versus Bunds was roughly 40bps.

The issuer immediately released the deal statistics, which showed that 81% of the deal was sold to German investors, while 8% went to the Nordics, 7% to the Benelux, 3% to Switzerland and 1% to Austria. The breakdown by investor type revealed that banks were allocated 50%, central banks/agencies 26%, asset managers 15%, and insurers 9%.

DBS Bank sold 60% of recent 7y deal to German/Austrian investors

DBS Bank set a record last week, when it was the first bank from Singapore that issued an euro benchmark deal through mid-swap. Yesterday, the deal statistics of the EUR 500mn 7y deal showed that German/Austrian investors received 60% of the deal, while 14% went to the UK, 10% to the Nordics, 6% to the Benelux, 5% to Switzerland, 3% to France and 2% to Asia/others. Asset managers were allocated 43%, central bank/official institutions received 22%, banks/private banks 25% and corporates 10%. The relatively low share of banks likely indicated that the paper is not eligible as collateral at the ECB, while the fact that Singapore is a non-OECD country could also have been a factor at play.

Deal flow likely to continue next week

Looking forward, it is likely that we will not see any more new deals this week, given that some markets are closed due to Thanksgiving. If true, ‘only’ EUR 1bn of euro benchmark covered bonds were added to total new issuance of euro benchmark covered bonds this week. This takes total issuance to EUR 8bn in November and to EUR 106bn year-to-date. It is likely that the flow of new deals will continue next week, given ongoing excellent new issue conditions.

Other news

* Fitch affirmed the AAA rating of the covered bonds issued by Clydesdale Bank. The rating buffer is three notches.

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