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Covered Bonds Issuance on Track for €170B

FRANKFURT-Full-year issuance could reach as high as €170 billion, but changes in bank regulation should help take-up.

By Allan Saunderson | Updated on January 21, 2010

FRANKFURT-New issuance of covered bonds and Pfandbrief, mostly for funding real estate, has been a massive €21.5 billion in the first 10 days of the new year, a volume not reached last year until mid-May, says Germany’s Commerzbank. Full-year issuance could reach as high as €170 billion, but changes in bank regulation should help take-up.

“A whopping 15 issuers have already launched new Jumbo covered bonds, and still the pipeline has not emptied,” said the report, by analysts Ted Packmohr and Annegret Hasler. January is traditionally one of the strongest issuance months and usually accounts for about 15% of annual volume so that expectations for the full year are around €150 billion to €170 billion.

Because the European Central Bank support program is scheduled to run out in June, front-loading of issuance activity was expected, and the high primary market volume is a natural result of issuers competing for an attractive market window. As of 12 January, EU central banks acting within the ECB purchase program had bought €29.5 billion of volume, around 5% lower than the pro-rata portion of the planned overall €60 billion purchase. Despite this, demand seems to show first signs of fatigue, with order books no longer filling up as swiftly.

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