BNP Paribas SA is selling 1 billion euros ($1.4 billion) of covered bonds as the cost of raising the debt holds near a record low.
France’s largest bank is marketing five-year notes backed by French residential home loans, while Landesbank Hessen-Thueringen is also selling 1 billion euros of covered bonds, according to people familiar with the deals. The average yield investors demand to hold the securities fell 24 basis points this year to an all-time low of 1.31 percent last week, Bloomberg bond index data show.
Covered bond redemptions are outweighing new issues by a ratio of six to one this month, helping boost investor demand, according to ABN Amro Bank NV. The European Central Bank may ease monetary policy in March even as data last week showed the euro-area’s economy grew faster than expected at the end of 2013.
“New issue conditions are favorable and market sentiment is constructive,” said Joost Beaumont, a covered bond analyst at ABN Amro Bank NV in Amsterdam. “With redemptions so high, investors need to reinvest. We expect ultra loose monetary policy to remain in place.”
Covered bonds are also attractive to investors because they will be exempt from European rules that call on bondholders to help absorb a bank’s losses by having unsecured debt written off, or bailed-in.
BNP Paribas’ notes will yield 8 basis points more than the benchmark mid-swap rate while Hessen-Thueringen’s five-year notes will price at the mid-swap rate. Both bonds are graded AAA by Fitch Ratings.
Also in the new issue market today, Swedbank AB, Sweden’s largest mortgage lender, is marketing 750 million euros of 10-year subordinated Tier 2 notes.