RBI’s Katarzyna Kapeller was among those at an ECBC plenary on Wednesday to give thanks for covered bonds in a turbulent year, despite the bank’s latest benchmark the previous day having proven “slow”, as speakers on a markets panel flagged a potentially tough winter ahead.

RBI’s new issue was one of four euro benchmarks this week, as supply continued its march towards a possible new record full-year figure, albeit with issuance easing as market participants met for ECBC/Euromoney events in Vienna.

Stadshypotek and UniCredit Bank AG (HVB) also hit the market on Tuesday, with €1bn seven year and green €500m no-grow long five year issues, respectively, the latter achieving strong oversubscription and a negligible new issue premium, in line with a €1bn 4.4 year public sector Pfandbrief for Landesbank Baden-Württemberg (LBBW) on Monday.

“That’s testimony that this market is working extremely well,” Patrick Seifert, head of primary markets and global syndicate at LBBW, told delegates.

Thomas Cohrs, head of FIG and SSA origination at Helaba, said it was “super-exciting” to see the market coming back to life.

“I’m really happy to see that all the research guys have to throw their analysis into the dustbin,” he said. “It’s going to be twice as much as we all expected, because – guess what – there are investors coming back.”

Panellists noted that this had contributed to the market so far transitioning smoothly from the mid-year end of new net purchases under the European Central Bank’s Asset Purchase Programme – indeed, Cohrs noted that the ECB’s Ad Visser, hitherto the regular target of complaints about CBPP3 at such events, could finally enjoy one without being “bashed”.

“Because you’re slowly moving out of the market, thank God!”

Katarzyna Kapeller, head of ALM at Raiffeisen Bank International (RBI), noted that the Austrian bank had been particularly active in covered bonds this year, issuing three of four benchmarks it now has outstanding, with the most recent having been a €500m no-grow four year on Tuesday.

She acknowledged that the latest had been “slow”, after it was priced in the middle of 24bp over mid-swaps area guidance and on the back of a book reported at best as “above €500m”. The spread of 24bp over for the September 2026 trade compared with a secondary level of 18bp for a €500m May 2027 covered bond RBI sold in May and 19bp for a €500m January 2028 it sold in January, according to pre-announcement comparables circulated by the leads.

However, she said that covered bonds had been a good “opener” vis-à-vis investors, noting that in the past month the bank has also issued Tier 2 and senior debt. Although RBI’s first covered bond benchmark of the year was launched in January, before the outbreak of the war in Ukraine, when it next approached the market, in May, the Austrian bank had been very much hit by the crisis, recalled Kapeller, with its spreads widening dramatically.

“We were not sure if we can, how we can re-enter the markets,” she said. “So for us, from the beginning, it was clear we need to start with covered bonds, because this is a low beta product, where we can engage with investors, where we can get feedback on a product where hopefully not too much can go wrong when you go out with them. It proved to work very well. I think the covered bond in May worked quite OK – at higher levels, but our cover pool contains also Czech, Bulgarian and Romanian assets, so the margin that we have pays it.

“These three different transactions were all very different,” she added, “but we learned again that the covered bond is a stable tool, even for us in a very difficult market environment, that we can rely on. It’s working in all circumstances, in all times.”

Julien Marchand, head of FI/SSA origination at NordLB, echoed this, noting that with the exception of the summer break, there was at least one covered bond transaction every week this year.

“If we take into account that we have a war starting in Ukraine, that we have super-high inflation that we haven’t seen for many, many years, and that everybody is afraid of the winter – at least in Germany, no one wants to look at their gas bill – it’s an achievement that the product was able – maybe not for every issuer or not for every maturity – but still the product as such delivered market access,” he said. “That’s a pretty good sign and underlines once again the quality of the product.”

Seifert at LBBW contrasted this with other bank funding instruments.

“There have been days and weeks throughout this year where probably it would not have been possible to execute transactions in unsecured with a fair amount of certainty,” he said.

A degree of pre-funding was also contributing to the surge in supply, according to Seifert.

“Because we all know that winter is going to be fairly cold,” he added, “so I guess that’s just a measure of prudency.”

Matthew Cairns, head of credit strategy and regulation at Rabobank, nevertheless saw reasons to be positive about the outlook – also having noted how the EU Covered Bond Directive was supporting developments.

“It’s key to keep in mind that going into QE, going into several rounds of TLTROs, it was a bumpy ride,” he said, “and it’s a bumpy ride coming out of that. There was huge concern around the ECB winding down its purchases, but, by and large, the market got through – we’ve just been talking about the incredible funding that has taken place. Yes, rates are moving, swaps are at a historically elevated level, but the market is getting through it. So, particularly for more international investors, it’s a case of explaining the nature of the European landscape.

“And the fact that there are actually some pretty strong comparisons to what we’ve seen in the US through all rounds of QE and the wind-down process: yes, there’s been a sell-off, but actually post that sell-off, there’s been strong demand, and strong demand for safe haven assets, be that Treasuries or covered bonds. And we’re very confident that’s going to be very much the case that we see here.”

Matthias Ebert, head of DCM FIG origination at DZ Bank, said that covered bonds could meanwhile become more attractive to potential issuers.

“As we see a larger differential between senior and covered, that could lead to additional issuers looking at it,” he said, “and they might be willing to pay up a bit in terms of spread, because they say, well, I’m now saving 60bp, 80bp, 90bp, so I’m willing to give up a few basis points more than before. And that in turn then attracts more investors.”