A German-heavy wave of euro covered bond supply continued this week as nine benchmarks hit the market, with deals from across jurisdictions finding demand even at low yields and longer tenors, but syndicate officials expect activity to slow next week as summer kicks in.
The euro covered bond market comfortably absorbed seven new euro benchmarks this week, with senior unsecured issuance following, as the market reopened after a positive outcome finally emerged from Greek negotiations on Monday morning.
Volatility sparked by a renewed sell-off in Bunds this week is set to decrease demand for any new euro covered bond benchmarks and divert issuance into shorter maturities, according to bankers, who have reined in supply expectations for the coming weeks.
The euro covered bond market will need a couple of days of stability in the broader markets before new issues are considered, according to syndicate bankers, while a leading investor said the back-up in Bund yields this week is the worst he has seen and could mark a turning point rather than a mere correction.
Stadshypotek sold a $1bn (Skr8.70bn, Eu931m) five year 144A covered bond on Wednesday of last week (2 April) and bankers suggested that although the deal had not achieved the same level of arbitrage as some recent transactions, European issuers could still see the dollar market as attractive.
DNB hit a weak market when it launched a $750m (Nkr6.12bn, Eu699m) Additional Tier 1 transaction yesterday (Thursday), with the book size and pricing off highs witnessed on recent US dollar Nordic AT1 supply.
Swedbank quickly followed up AT1 and senior unsecured deals with a Eu1bn seven year covered bond on Wednesday, the tightest post-crisis Nordic euro benchmark, and the issuer’s funding head said the prevailing low funding costs mean there is little incentive to hold off.
The start of the first Danish auction season to include sales of adjustable rate mortgage (ARM) bonds at negative yields was hit by nervousness about the Danish currency and interest rates on Monday, with yields backing up more than 30bp, but levels and bit-to-covers improved from Tuesday onwards.
Danske and Swedbank this week hit a hectic Additional Tier 1 (AT1) market and Handelsbanken and Nykredit Realkredit mandated debuts in spite of some weakness in the hybrid asset class, while DNB today (Friday) stuck to its domestic market for its first AT1.
Danske Bank and DNB results announced this week were well received, although their figures and Swedish reporting this week confirmed the trend of the low interest rate environment affecting performance.