Covered Bond Issuance Tops $7 Billion in Busiest Week Since June

Global covered bond sales rose this week to the most in almost three months with issuers from Europe’s core and peripheral countries selling the debt.

Nordea Bank AB (NDA), Scandinavia’s largest bank, and Milan-based UniCredit SpA (UCG) led 5.68 billion euros ($7.6 billion) of issuance, up from 872 million euros last week and the highest weekly total since the period ending June 2, according to data compiled by Bloomberg.

Covered bonds, which are backed by mortgages and public sector loans and typically get top credit ratings, are being issued this year at the slowest rate since 2002, according to Bloomberg data, as central banks flood the financial system with cheap funds. The average yield on the securities rose to 1.9 percent, the highest since July 30, Bloomberg bond index data show.

“We were well overdue some issuance,” said Jozef Prokes, a London-based member of the Euro fixed income team BlackRock Inc. “It’s easier at the moment to place covered bonds as investor demand is there and banks will want to get issues away before September arrives when there will be more deals competing for investor attention.”

Stockholm-based Nordea sold 1.5 billion euros of five-year 1.375 percent bonds through Nordea Bank Finland Plc, in the biggest issue of the week, Bloomberg data show. The notes were priced to yield 59.1 basis points more than government debt. UniCredit, which agreed to a spread of 142.7 basis points for its 1 billion euros of seven-year notes, was the second-biggest issuer.

Net Supply

Sales of covered bonds slumped to 135.1 billion euros this year, down 39 percent from the 221.2 billion euros of issuance in the same period last year, Bloomberg data show.

The euro benchmark covered bond market will end the year with negative net supply of more than 50 billion euros, Bernd Volk, head of European covered bond and agency research at Deutsche Bank AG in Frankfurt, said in a telephone interview today.

“Issuers are thinking it is better to come to market sooner rather than later as there are plenty of things to worry about in the coming months, such as emerging market weakness and German elections,” said Richard Kemmish, head of covered bond origination at Credit Suisse Group AG.

To contact the reporter on this story: Alastair Marsh in London at amarsh25@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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