Covered Bond & RMBS Comment – Norwegian tightest

by: Joost Beaumont

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.

  • DNB Boligkreditt set new all-time record tight new issue level for 7y deal
  • Demand still strong, probably reflecting pickup versus core countries
  • Norway now ranks fourth in terms of this year’s issuance of covered bonds
  • Year-to-date issuance now at EUR 101bn, while pipeline is well filled
  • Santander UK was second issuer this week to sell 5y GBP floater
  • Tight spreads resulting in some profit taking in secondary market…
  • …also suggesting increased investors’ reluctance to buy at current levels
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DNB Boligkreditt prints second jumbo deal of the year

DNB Boligkreditt printed its second euro benchmark covered bond of this year yesterday. The sizeable EUR 1.5bn deal was priced at the tightest spread ever of a Norwegian covered bond. This should actually not come as a surprise, given the strong tightening of spreads so far this year (Norwegian spreads have declined some 12bps according to the iBoxx index). Demand for the deal was solid though, probably reflecting that the deal still offered a pickup of around 10bps versus core covered bonds, which is a lot given the current ultra-low spread levels. Overall, year-to-date supply of Norwegian euro benchmark covered bonds now stands at EUR 7.5bn, taking the fourth place in the share of total issuance so far this year.

More deals in the pipeline

Issuance of euro benchmark covered bonds was EUR 2.75bn this week, which brought year-to-date issuance to EUR 101bn. This number is likely to increase next week, as more deals are in the pipeline. Deutsche Hypothekenbank might issue its first green covered benchmark next week, while Achmea Bank will complete its roadshow for a EUR 500mn 7y conditional pass-through covered bond (ABN AMRO involved in both deals). Meanwhile, Sparkasse Hannover and Wuestenrot Bausparkasse are on the verge of selling inaugural sub-benchmarks mortgage Pfandbriefe.

Santander UK active in GBP market

Santander UK followed in the footsteps of Sparebank 1 Boligkreditt by issuing a GBP 500mn 5y floating rate covered bond. The spread was set at 3mL +23bps, which was 4bps below guidance as well as the level where SPABOL sold its deal on Monday.

Some profit taking in secondary market

We saw some profit taking yesterday on the back of spreads having reached a post-crisis tight, while central bank speak was regarded as somewhat hawkish. Profit taking was mainly in the 7y to 15y part of the curve. Spreads remained roughly stable, while flow was also light. Overall, it seems that investors are becoming increasingly reluctant to buy covered bonds at current levels.

Other news

* S&P revised the rating outlook of the public sector covered bonds of Unicredit AG from negative to stable, reflecting the upgrade of the issuer rating. It also affirmed the AAA rating. The rating buffer is one notch.

Other recent publications:

Green Bond Monthly – Financials lead green charge
Financials Watch – Foundations arise for a new bank funding mix
Global Daily – ECB signals prolonged monetary stimulus
Covered Bond Watch – No tapering of covered bonds
Financials Watch – European bank issuance outlook for 2018
Housing Market Monitor – Home sales growth decelerates