Dexia Kommunalbank and Yorkshire Building Society are set to return to the covered bond market next week with their first new issues in three and four years, respectively, according to bankers, who expect a front-loaded start to June ahead of an ECB meeting on Thursday.

A syndicate banker said this (Friday) morning that the market was looking supportive for covered bonds and that the broader market “has calmed down”.

“The pipeline will resurface next week, and we will have a busy three days, with Yorkshire Building Society and DKD likely to issue,” he said. “The ECB meeting on Thursday will see issuers take advantage of the first three days, and CCDQ and Westpac NZ will begin roadshows.”

A syndicate official at one of the leads for the upcoming Dexia Kommunalbank (DKD) (pictured) deal said that feedback from a series of investor meetings, which ran through last week, had been positive, adding that next week would be a good time to issue.

Barclays, Commerzbank, DZ Bank and HSBC will lead manage the deal. The lead syndicate official said a decision on the exact timing will not be taken until next week.

Under the conditions of its bail-out, Dexia Group, DKD’s parent, placed the German covered bond issuer in wind-down. According to an investor presentation, DKD said that it intends to be a frequent issuer, with expected annual issuance of Eu1bn-Eu1.5bn in the three and five year maturity range. This will allow the bank to service its balance sheet, it said, which stood at Eu39.6bn at the end of last year and which it plans to cut to Eu14.9bn by 2023.

Michael Spies, strategist at Citi, noted DKD’s expected market return coincides with two of its outstanding bonds, with a combined value of Eu2bn, maturing over the next two weeks. He added that DKD public sector Pfandbriefe are only rated by Standard & Poor’s, at A+, but he noted that “the ownership structure and the liquidity support mechanisms in place are effective safeguards in our opinion”.

Spies said that DKD Pfandbriefe “are trading cheapest among its peers” because its covered bonds are only rated by the one agency.

A banker away from the leads said that he would put fair value at 30bp over mid-swaps, given that it would be DKD’s first euro benchmark since 2011, and because it is one of the weaker German names.

According to a lead syndicate official an outstanding DKD May 2018 benchmark was today trading around 19bp over mid-swaps. He added that the lower rating of DKD was unlikely to be a factor given that “no-one cares” about ratings for German Pfandbriefe.

Yorkshire Building Society is also planning to issue its first covered bond since 2010, with Danske Bank, DZ Bank, JP Morgan and Natixis awarded the mandate to lead manage the deal. (See yesterday’s article for more.)

A syndicate official at one of the leads said that a Lloyds Eu1bn seven year would be used as a comparable because it is the only euro benchmark from a UK issuer this year. That transaction was priced at 15bp over, and, according to the syndicate official, was today trading at 12bp over.

He noted that the Lloyds transaction is rated Aaa by Moody’s, while Yorkshire Building Society covered bonds are rated Aa1, and as a result the leads would be looking at the difference in spreads between Aaa and Aa1 rated covered bonds.

“For example, looking at Eika Boligkreditt and SpareBank 1 covered bonds in the seven year maturity, they are rated Aa2 and Aaa respectively,” he said. “These names represent good value and have a spread difference of 4bp-5bp.”

Canada’s Caisse centrale Desjardins du Québec (CCDQ) will begin a non-deal related roadshow next week, managed by Barclays, Crédit Agricole and DZ Bank. Westpac New Zealand is also set to begin meeting investors on Monday, having become the first New Zealand issuer to have its programme registered by the Reserve Bank of New Zealand.