In 2025, Fairstone Bank merged with Home Trust Company in a deal that had been announced in March 2024. With a mortgage book of about C$20bn after this “transformative” merger, covered bonds now make a lot of sense, according to Peter Walker, Senior Vice President & Treasurer of Fairstone Bank.

“Covered bonds is an asset class that Home Trust had looked at a number of years ago but did not see that project through, but it’s something we picked up again as the merged institution,” he told The CBR. “As part of the overall evolution of our funding capabilities, this is a logical source of efficient funding – particularly with the strong legislative framework that’s available in Canada – but also really prudent investor diversification, because the other funding sources we tend to rely on would be done in the Canadian market.”

The range of such issuance includes instruments ranging from senior debt to credit card securitisations and asset backed commercial paper.

In a deal announced in December 2025, Fairstone Bank is acquiring Laurentian Bank of Canada, following the sale of specified retail and SME portfolios to National Bank of Canada. Fairstone Bank’s acquisition was approved by the Canadian Minister of Finance in June and is set to close in November 2026, giving the bank even greater scale – something Walker highlights as particularly important given the 5.5% covered bond limit of the Office of the Superintendent of Financial Institutions (OSFI).

“The asset encumbrance limit in Canada is very impactful,” he said, “particularly to issuers of our size. When you look to do a transaction like this, there’s a large set-up expense and a lot of time and effort, so you want to be able to issue enough to really see the cost savings realise themselves.

“This impending business combination is expected to significantly increase the size of our balance sheet, which would in turn increases our covered bonds capacity under the applicable limit.”

Laurentian Bank itself has an existing covered bond programme, having debuted in 2021 with a C$250m five year covered bond and with one covered bond outstanding, a C$260.01m April 2027 issue, according to the Canada Mortgage & Housing Corporation (CMHC) registry. However, Laurentian Bank’s programme was set up for its solely Canadian dollar issuance – a strategy different to any other Canadian issuer – and Walker said the Laurentian programme is expected to transfer with the company, but Fairstone does not currently expect to issue from it following closing. Future senior debt and covered bond issuance by the combined entity is expected to occur at the Fairstone Bank of Canada level.

Fairstone Bank’s greater issuance capacity also means that it could announce its debut as a benchmark transaction, rather than a sub-benchmark size, which the last two Canadian entrants, Equitable Bank and Laurentian both started with.

“We think the €500m size contributed to the very positive investor reception,” said Walker. “Based on our anticipated pro forma balance sheet and subject to market conditions, we believe we should have the capacity to issue approximately one benchmark-sized euro transaction annually.”

After the merger with Home Trust, the combined entity was granted an investment grade rating by DBRS, and in January this year, it obtained a Moody’s rating of Baa2, also with a view to having two covered bond ratings. Its covered bonds are now rated Aa1/AA (high).

Although the bank has a wide range of lending, including alternative lending, its cover pool is in line with those of other Canadian issuers, noted Walker (pictured), being subject to the CMHC guide and OSFI rules.

“The uniformity of the Canadian product issued under the legislative framework is part of the reason Canadian covered bonds enjoy such a positive reception in Europe,” he added, “and ours falls into line with that.”

Fairstone Bank’s C$1.5bn programme and the bank as covered bond issuer received approval from CMHC on 8 September, and on 21 September, a roadshow for a debut three year covered bond was announced, via bookrunners BMO, DZ, LBBW, Natixis, and arranger and sole structuring advisor RBC.

The roadshow took in the ECBC and FT Live gathering in Seville the week of the mandate announcement, followed by virtual and in-person meetings in four European cities the next week, with Walker and CFO Amir Gorgi meeting over 50 investors overall.

Market conditions meanwhile deteriorated from the conditions that allowed for a month-long pre-Seville issuance bonanza, with only one issuer venturing out with a benchmark in the week commencing 28 September. However, ABN Amro and Mediobanca were able to get away successful three year trades on 6 October when a window opened, with Equitable hitting the market the following day with a €500m long three year, even if conditions were weakening again.

“Clearly, the market has been a little more challenged, with some of the conditions in Europe not so strong,” said Walker. “We remained optimistic that we would find our window, but as we concluded our marketing, we decided that we would take the time we needed to find the right access point.

“It was then very helpful to see a couple of deals go into the market, and then of course our peer Equitable Bank completed their transaction with one of the stronger books they’ve had. That certainly provided us with some confidence that we’d be able to find a window ourselves, which we then did.”

On Monday of last week (12 October), Fairstone Bank’s leads teed up launch as early as the next day. They reported consensus feedback that fair value would be around flat to Equitable or with a small premium to reflect the inaugural nature of Fairstone Bank’s deal. Equitable’s new issue was quoted at 33bp, mid, among comparables circulated by the leads.

The next day (Tuesday, 13 October), they opened books with guidance of the mid-swaps plus 45bp area for the €500m no-grow October 2029 transaction. After around an hour, the leads reported books above €1.1bn, including €100m of joint lead manager interest, and after around two hours and 50 minutes, they set the spread at 40bp on the back of books above €1.4bn, including €125m of JLM interest. The final book was some €1.54bn, with more than 50 investors participating.

“Being our inaugural issue, the level of interest that we received was remarkable,” said Ramana Kovvali, Vice President, Treasury – Capital Markets at Fairstone Bank (pictured). “The work that our dealers as well as Peter and Amir [Gorgi] put in meeting with the investors paid rich dividends – almost all of them put money on the table, as well as some new investors.

“So we achieved the largest investor base for any deal the company has ever done, and it’s also a new set of investors for us, from Europe. So this is a great tool for diversifying our funding sources as well as being on of the highly cost-efficient funding sources that we have.”

The Nordics took 25.4%, Germany, Austria and Switzerland 22.9%, the Benelux 21.7%, the UK and Ireland 15.7%, APAC 6.0%, Iberia 2.6%, and other 5.8%. Asset managers were allocated 47.6%, bank treasuries 13.4%, central banks and official institutions 25.6%, hedge funds 12.6%, and insurance companies and pension funds 0.8%.

“The deal was a great success,” said a syndicate banker at one of the leads, “a very convincing debut for a name that until a few weeks ago would have been more or less unknown to most potential buyers.”

Walker said the pricing was in line with what had been expected in light of the market conditions and investor feedback during the roadshow.

“Obviously, spreads were a little bit elevated versus prior weeks and pre-conference, but the market being where it was, we wanted to make sure that we provided initial pricing guidance that spread the net wide for an initial issuance,” he said. “We were able to tighten by 5bp to 40bp, to a handful of basis points wider than where the Equitable transaction was trading – we think investors were seeking an inaugural issuer concession and so it came in line with expectations.

“So overall, we are content with the pricing, very pleased with the demand and distribution, and we still managed to achieve pricing that, when we swap it back to Canadian dollars, is very appealing versus any other source of institutional or wholesale funding that we have in the Canadian market.”

Fairstone Bank’s debut performed in the secondary market and has traded as tight as Equitable’s 34bp re-offer spread.

As suggested by the previous supply, the three year maturity was seen as a sweet spot in the current market, while also suiting Fairstone Bank’s needs from an asset-liability management perspective. An ongoing preference for the three year part of the curve should also help the bank hit its ambitions of issuing one benchmark a year, as it rolls maturing issues, noted Walker.

“We’re very pleased with the offering,” he added. “The market backdrop was challenging, but the transaction was executed successfully and provides a strong foundation from which we can continue to develop the programme as a regular issuer. We were keen to start our issuance programme in a way that would provide a base that we can improve and evolve over time as we become the regular issuer that we’re planning to be.”

The covered bond, priced on 30 September, comes after Spuerkeess (or BCEE, Banque et Caisse d’Epargne de l’Etat, Luxembourg, in full, but known by a shortened Luxembourgish version of its name domestically since 2020) last year issued its first senior unsecured benchmarks, a €500m six year senior preferred bond in March 2025 and also a €500m six year senior non-preferred in November 2025.

“Spuerkeess is well funded by our customer deposits, with a loan-to-deposit ratio well under 70,” Claude Origer, Head of Department, Global Markets at Spuerkeess told The Covered Bond Report. “Nevertheless, the bank took a strategic decision in recent years to diversify our funding base and to add contractual long term funding.

“That was around the same time that the covered bond directive was incoming, and in light of that, it clearly made sense to look at this most liquid, cheapest, and operationally relatively straightforward instrument for long term bank funding.”

As well as being the first ever Luxembourg covered bond backed by domestic residential mortgages, Spuerkeess’s debut is the first since the country updated its legislation in 2021 in conjunction with the European Covered Bond Directive, which was key to the inaugural trade being the first from a universal bank in Luxembourg.

The updated framework allowed for the direct issuance of covered bonds by universal banks as well as specialised banks. The existing lettre de gage legislation that had previously constituted Luxembourg’s covered bond framework was based on the specialist banking principle that had been a feature of Germany’s Pfandbrief market when Luxembourg legislation was first established – although Germany itself subsequently abandoned the principle.

Previous Luxembourg covered bond issuance had been primarily driven by subsidiaries of German banks taking advantage of greater flexibility offered by the jurisdiction than the Pfandbrief market to issue primarily public sector-backed issues. The last such issuance in benchmark format was a €500m seven year issue for NordLB Luxembourg Covered Bond Bank in 2020 and it is the only previous benchmark outstanding.

The update to Luxembourg’s legislation was made very much with domestic banks in mind, with input from the Luxembourg Bankers’ Association (ABBL), of which Spuerkeess is a member.

“For us, it was quite important, in the covered bond space, to align the law as much as possible with the European standard,” said Origer (pictured). “That’s why under the new law you can issue both premium European covered bonds and still also the old-style lettres de gage.

“Setting up a specialised bank would have been costly to us,” he added. “It was important to do it on-balance sheet, in the same way that our German neighbours now do it, that our Belgian neighbours do it.”

Luxembourg’s legislation imposes an asset encumbrance limit similar to the framework previously in place in neighbouring Belgium, where the statutory limit was abolished in 2024. In Luxembourg, the aggregate cover pools related to covered bonds issued by a universal bank may not exceed 20% of its total on-balance-sheet liabilities, including own funds and after deduction of eligible deposits.

Spuerkeess’s €7.5bn programme for the issuance of obligations garantie européennes (de qualité supérieure) was approved by the Commission de Surveillance du Secteur Financier (CSSF) in July and, with its first half results due on 21 September, Spuerkeess eyed the September industry gathering in Seville as the launchpad for its debut with pre-marketing to investors.

“Our covered bond story is really about having a triple-A instrument from a triple-A country by a AA+ bank, with only Luxembourgish mortgages,” said Origer.

Spuerkeess, which has a 52% share of the Luxembourg retail mortgage market, is rated Aa3/AA+/AA (Moody’s/S&P/Scope).

“It gives investors the opportunity to invest in something that provides them with diversification from what they are usually offered,” he added. “And then the cherry on top is the green framework.”

The covered bond is Spuerkeess’s second benchmark green bond, its first having been the €500m senior preferred deal in March last year. The use of proceeds are energy efficient buildings and the framework is aligned with the ICMA Green Bond Principles.

The bank also highlighted the update to Luxembourg’s covered bond legislation in its meetings with investors.

“A lot of accounts were familiar with lettres de gage and their rather idiosyncratic history,” said Julien Kohn, Investor Relations Manager at Spuerkeess (pictured), “so we did a lot of work explaining the new framework and its alignment with European standards.”

Although market conditions post-Seville had deteriorated from those that had seen a month long boom in issuance from mid-August, Spuerkeess took advantage of a relatively stable market on 30 September to enter the market – issuing what was ultimately the only euro benchmark covered bond of the week, and one of only two euro FIG benchmarks that week.

Leads Belfius (global coordinator), Deutsche, LBBW and Natixis went out with guidance of the mid-swaps plus 38bp area for the €500m no-grow October 2033 green covered bond, expected rating Aaa. After around two hours, the leads reported books above €1.5bn, including €75m of joint lead manager interest, and after a little over three hours, the spread was set at 31bp on the back of orders above €1.8bn, including the €75m of JLM interest, and the final book was reported at that level.

“We are very happy the first transaction went so well,” said Origer. “Not only the oversubscription, but also the quality of the order book was quite impressive, including some official institutions and central banks, which is not always the case for covered bond issuance.

“The spread may have been a little wider than it could potentially have been three weeks earlier, but in the end we managed to tighten by 7bp, which is a little higher than what you usually see for covered bonds. So the result was clearly in line with what we had aimed for, even if market conditions were more difficult than previously.”

The new issue has since tightened a little to trade slightly inside 30bp, which Origer said showed the debut had struck the right balance between issuer and investor considerations.

Banks and private banks were allocated 60%, asset managers 16%, central banks and official institutions 15%, and insurance companies and pension funds 9%. Benelux investors took 36% of the paper, Germany, Austria and Switzerland 27%, the Nordics 16%, France 11%, southern Europe 5%, and the UK and Ireland 5%.

Spuerkeess plans to issue at least one euro benchmark bond a year in either a senior unsecured or covered bond format.

“The bank intends to show this regularity more through covered bonds,” said Origer, “with at least one benchmark issuance every 12 to 18 months. That will depend on market conditions, and we probably will not need to issue more than twice per year given our balance sheet of around €60bn.

“But the clear intention is to become a regular issuer.”

The inaugural Luxembourg covered bond also paves the way for other domestic banks.

“The success of our first transaction shows our peers that issuance is feasible,” said Kohn, “and we are very proud that we may have opened the market for others.”

Following sentiment at the end of last week verging on the “apocalyptic”, in the words of one syndicate banker involved in today’s issuance, conditions improved significantly yesterday (Monday). Euro FIG supply remained confined to only a €250m six year mortgage Pfandbrief for Evangelische Bank, but issuers monitoring the market spotted a potential window of opportunity and the Dutch and Italian deals hit screens this morning.

“It again shows how quickly the tide can turn,” said the syndicate banker. “A lukewarm day like yesterday is apparently enough to make people reconsider their stance and jump on the next ship that comes along.”

Bankers involved in today’s trades said the new issues surprised to the upside.

“We had been monitoring the market for one or two sessions, wondering whether it could make sense,” said another syndicate banker, “and after a stable day yesterday, given how we opened, it was a good day, and it ended up with an even stronger tone than we had expected.”

ABN Amro was first out of the blocks. Leads ABN Amro, BNP Paribas, Crédit Agricole, Deutsche, DZ and NordLB opened books at around 09.00 CET with guidance of the mid-swaps plus 18bp area for a euro benchmark-sized October 2029 Dutch legislative covered bond, expected ratings Aaa/AAA (Moody’s/Fitch). After around an hour and 20 minutes, they reported books above €1.5bn, excluding joint lead manager interest, and after around two hours and 40 minutes, they set the spread at 14bp and the size at €1.5bn on the back of orders above €2.05bn, excluding JLMs. The final order book was above €2bn.

“I wouldn’t have thought it would be so successful,” said the first syndicate banker. “The world is still on the brink, but evidently people still have money to spend, and when they see a decent option to invest, they will do so.

“It was a very good trade and encouraging, no doubt about it.”

Another lead banker said ABN Amro in a defensive maturity was an ideal candidate to revive supply in size. He noted that while hedge funds were now all but absent from today’s order books, this meant that the quality and stickiness of orders was very high.

“That gave us a much clearer idea of what we could do,” he added. “Demand from central bank and treasury accounts was very strong from the start.

“Hedge funds were very rare, which is new but not a surprise – they were always going to disappear after the moves that we’ve seen over recent days.”

Although the new issue premium could be seen as 5bp versus comparables circulated by the leads, bankers said secondary prices on screens did not necessarily reflect where trades could be executed, and saw the re-offer spreads achieved today as successful for the issuers.

Mediobanca hit screens around 25 minutes after the Dutch bank, via BofA, Commerzbank, Crédit Agricole, Erste, Mediobanca, Santander, SG and UniCredit. They went out with guidance of the mid-swaps plus 35bp area for October 2029 OBG, expected rating AA+ (Fitch), guiding an expected size of €500m. Ater a little over two hours, the leads reported books above €1bn, and after around two-and-three-quarter hours, the spread was set at 30bp and the size at €750m on the back of more than €1.2bn of orders, including €25m of JLM interest. The final book was above €1bn, excluding JLMs.

“We were quite happy with the decision to go and the outcome,” said a lead banker, noting it reflected similar dynamics to ABN Amro’s deal.

He said the premium versus BTPs – ultimately 6bp-7bp – gave the trade good momentum with domestic accounts, encouraging other investors to get involved.

Should market conditions persist, further euro benchmarks should emerge soon, according to syndicate bankers. The public pipeline currently comprises two Canadian mandates in the three year part of the curve.

Plans for a debut covered bond from Fairstone Bank were announced on 21 September, with a roadshow following. BMO, DZ, LBBW, Natixis and RBC (arranger and sole structuring advisor) have the mandate for the three year euro benchmark, expected ratings Aa1/AA (high) (Moody’s/DBRS).

And plans for a €500m no-grow December 2029 covered bond for Equitable Bank were announced last Wednesday. Barclays, Commerzbank, DZ, Erste, LBBW, Scotiabank and TD have the mandate for the issuer’s latest deal.

Bankers suggested the more established Equitable could lead the way.

“In light of today’s supply, we would definitely recommend that at least they made use of this window,” said one. “Unless the world falls off a cliff overnight, they should stand a good chance to get it done.

“People have had enough time to make up their mind about those offerings, so if the option is there, they should shoot sooner rather than later.”

Plans for the debut – mandated to Commerzbank, DZ and NordLB – were announced on 21 September, with Germany’s largest church bank then holding a roadshow until the end of last week, also taking in ECBC-related events in Seville the week before last.

The cooperative issuer, which has a focus on the church, healthcare and social economy, had total assets of €8.83bn at the end of 2025. Evangelische Bank highlighted its sustainability credentials in its marketing, and these are reflected in the composition of its cover pool, which beyond more typical residential and commercial properties and buildings, includes specialist categories such as elderly care and assisted living facilities, homes for disabled people, and rehabilitation clinic exposures.

Following the roadshow, the leads this morning decided to proceed with launch, although the decision was not straightforward, according to a syndicate banker at one of the bookrunners.

“We felt the market is not the very best – we are not on 10 out of 10,” he said, “but we had done our homework for this one. We knew this wouldn’t have a €700m book and that only those investors who had given us feedback before would come in, but we thought that was enough to get this one done today, and to get it done properly.

“We also had in mind that tomorrow might be a better day, but also with more other trades, and we would perhaps not have the attention from investors that we had today.”

The success of a €500m seven year debut from Luxembourg’s Spuerkeess (BCEE) against a similar backdrop last week also offered encouragement, in showing that a well prepared deal from a niche sector could achieve a decent result, he added, even if Evangelische Bank’s offering was more modest.

The leads therefore opened books with guidance of the mid-swaps plus 35bp area for the €250m no-grow October 2026 Hypothekenpfandbrief, expected rating AAA (S&P). After an initial update reporting books above €300m, including €50m of joint lead manager interest, the leads set the spread at 32bp on the back of more than €325m of demand. The final book was above €340m, including the JLM interest.

“The quality of the book was extremely high,” said the syndicate banker, “so we could have printed €340m. The issuer was very content with the outcome.”

Based on Pfandbriefe of names such as DZ Hyp and MünchenerHyp, and adding a premium for the sub-benchmark nature of Evangelische Bank’s debut, he estimated the new issue premium at around 2bp.

“That’s really OK in this market,” added the syndicate banker.

Distribution was 100% domestic, which was in line with expectations, he said, even if some Nordic demand would have been welcome.

“In the end the spread was not sufficient. So we think it was the spread was right to get this one done – not too tight, not too wide.”

Photo: Evangelische Bank building, Kassel

The deal is only the fourth covered bond in EuGB format, with Nordea Mortgage Bank having kicked off such issuance in March.

Back in 2018, SpareBank 1 Boligkreditt (SpaBol) issued the first green covered bond backed by residential mortgages. Having issued several more green bonds based on the ICMA Green Bond Principles, the Norwegian issuer has now become an early adopter of the latest standard.

Hegelstad, CFO and head of investor relations at SpareBank 1 Boligkreditt, told The CBR that, in issuing the EuGB, SpaBol is “answering a call from the debt capital markets”.

“There’s an evolution in the definition of green bonds,” he said, “moving away from the one we had when we issued the first ICMA green covered bond eight years ago. And it’s natural for issuers who can to evolve with that standard and to be at the forefront – I think investors appreciate that.

“And we can do it relatively straightforwardly because of the simplicity of our set-up and financing residential mortgages, which avoid some of the potential complications of other asset classes. So we could do it and we wanted to do it.”

The issuer has also restricted itself to section 7.7 of the EU Taxonomy, the acquisition and ownership of buildings, thereby avoiding dealing with the challenges that building renovations can raise.

“There’s only one aspect that sort of gave us a little bit of pause,” added Hegelstad,” and that is, of course, that this is a heavily regulated product. You shouldn’t make any mistakes and if you do, you can be liable.”

SpaBol worked with Norwegian law firm Bahr, as well as Deutsche, ING and Swedbank on the project, while Moody’s provided the pre-issuance review and second party opinion, confirming alignment with EuGB requirements as well as the Green Bond Principles.

For the EuGB issuance, SpaBol uses an updated methodology for selecting EU Taxonomy-aligned green homes established by Eiendomsverdi in June. The model is the same as that used by Enova, which runs Norway’s energy performance certificate (EPC) scheme, and was in part motivated by a new and more detailed Norwegian labelling regulation coming into force in January.

Hegelstad also used an Eiendomsverdi model to address do no significant harm requirements, which in SpaBol’s case involved the physical risks residential properties are exposed to. With there being no regulatory clarity on the application of the appropriate metrics, he said SpaBol considered what other banks issuing EuGBs had done and took adopted a middle of the road approach.

The Norwegian issuer entered the market on Wednesday, 19 August ahead of a €1bn covered bond redemption on 30 August and with it having so far in 2026 tapped the euro market in March, with a €1bn six year. Hegelstad noted that SpaBol has regularly issued early in the post summer season.

“We have had some good experiences with August in the past,” he said. “People are back from their holidays and seem ready to engage. And it’s kind of a fresh market – that’s why we wanted to do it again in August this time, rather than wait until later in September when the market may be a bit more filled up and maybe more tired.”

Leads Deutsche, ING, LBBW and Nordea priced the €1bn (NOK10.8bn) August 2033 issue, expected rating Aaa, at 23bp over mid-swaps on the back of more than €3.3bn of orders, including €275m of joint lead manager interest. The spread was tightened 7bp from initial guidance of the 30bp area and the new issue premium put at zero.

SpaBol and its bookrunners estimated that having a green label attracted incremental demand of around €600m. Hegelstad noted that many investors remain happy with the ICMA label, but one lead manager suggested that demand potentially surpassed what would likely have been achieved on a comparable Green Bond Principles-based deal, with the EuGB label appearing to have broadened the investor base and supported “heftier, stickier orders”. Hegelstad also highlighted the lack of attrition in the book as final terms were set.

“We had also been thinking that the price could be 24bp, but the order book was so strong that 23bp was definitely on the cards,” he said, “and indeed we saw that when we tightened almost no one dropped – the book had been above €3.4bn and then just a tad below. Even the price-limited orders essentially stayed in.

“Is it the EuGB that ties people in? A lot of accounts who buy normal bonds also like to have a green label if it’s available.”

Split by “greenness”, dark green accounts were allocated 20% of the paper, medium green 25%, light green 11%, and conventional accounts 44%, according to the leads.

The order book included close to 100 accounts. Banks took 59% of the paper, asset managers 16%, insurance companies and pension funds 10%, central banks and official institutions 10%, hedge funds 4%, and other investors 1%. Germany, Austria and Switzerland were allocated 49%, the Benelux 20%, the UK and Ireland 9%, southern Europe 8%, the Nordics 6%, France 6%, and other 2%.

SpaBol is planning to retain the EuGB format for any future green covered bonds, rather than returning to an ICMA-only labelled green bond. According to Hegelstad, the issuer could comfortably issue another €1bn EuGB, although it is not planning to issue another benchmark in euros this year after completing its expected two for the year.

It could meanwhile look at Nordic currency issuance, including EuGBs – it already has two green bonds totalling SEK6bn (NOK5.84bn, €539m) outstanding.

In spite of geopolitical and other headwinds, euro benchmark issuance in the first six months of the year reached €120bn – up 18% on H1 2025 and the third highest first half supply of the past 20 years, according to Karsten Rühlmann, senior investment analyst at LBBW.

Last month proved particularly strong, being the busiest ever June, according to NordLB analysts, as €23.1bn of euro benchmarks pushed supply through the €100bn barrier to its first half total.

“Overall, the second quarter more than made up for the rather average start to the year in terms of issues on the primary market,” they said.

Most covered bond analysts’ forecasts for the full year were in a €160bn-€170bn range, but some have increased their full-year targets in light of the strong first half.

Euro benchmark issuance trend H1 2026

Source: Bloomberg, NORD/LB Floor Research

NordLB’s forecast has been raised €13bn, from €166bn to €179bn, implying some €59bn of euro benchmarks over the remainder of the year, with its analysts flagging two key wildcards.

“In addition to geopolitical events that could bring issuance activities in the covered bond market to a standstill,” they said, “the high maturities in 2027 (€177.3bn) especially represent a certain forecasting risk.

“We can well imagine that some issuers would therefore take advantage of a favourable market environment in October and November to engage in pre-funding and thereby somewhat alleviate the pressure on issuance activities heading into 2027.”

LBBW’s Rühlmann has lifted the bank’s forecast by €14bn, from €162bn to €176bn, with downside risks stemming from lower funding needs in some jurisdictions.

“On the one hand, due to increasing deposit growth amid an uncertain economic environment. On the other hand, due to sluggish mortgage growth.

“In non-euro jurisdictions in particular, other currencies might also seem more attractive,” added Rühlmann. “This year, higher issuance volumes were observed primarily in the US dollar and sterling segments.”

Florian Hillenbrand, senior covered bond analyst at Helaba, said a more modest increase, from his initial €163bn forecast to €169bn, may appear reasonable.

He noted that on a long term average, around 67% of total annual volume is placed in the first half of the year, which would translate into a €180bn-plus figure for 2026.

However, Hillenbrand said that despite elements of his bottom-up forecast proving too low (Canada and the UK) or too high (Sweden, Singapore and Austria), these balance out and overall his analysis and aggregate target remain valid, with front-loading also at play. He cited US mid-term but also German state elections as factors in the latter.

“A fundamental ‘on-off’ expectation regarding the primary market ultimately implies a ‘take what you can, while you can’ approach in anticipation of a potentially turbulent autumn,” said Hillenbrand.

Maureen Schuller, head of financials sector strategy at ING, also remains comfortable with her €165bn forecast. She meanwhile said that – particularly in light of 2027’s record redemptions – she sees no reason for supply to undershoot the near €50bn typically recorded in the second half – regardless of the rise in interest rate levels and the implications this may have on mortgage lending growth.

When it comes to the implications for market conditions and spreads, Commerzbank head of financials and covered bond research Ted Packmohr said that even if issuance exceeds his forecast of €170bn, net supply pressure is likely to remain low in the second half. With €156bn of redemptions this year, gross supply of €170bn would correspond to around €44bn of net supply pressure, given that €30bn of redemptions are going to the ECB without generating any reinvestment need.

“However, this is pretty much in line with the net supply volume that we have already seen in H1,” noted Packmohr, “meaning the market has already absorbed the corresponding pressure. For the remainder of the year, new issues and maturities should be much better balanced, as redemptions in H2 will be quite high in both absolute and percentage terms.

“A relatively large amount of money will therefore flow back to investors, which should limit supply-driven spread risks, even if gross supply for the year as a whole were to slightly exceed our expectations.”

Hillenbrand meanwhile said it is hard to find risk factors that would likely upset spread performance, save a “veritable” government crisis in core European countries or an “unprecedented” escalation of ongoing conflicts.

The benign outlook contributes to confidence that covered bonds will perform – by as much as 5bp, according to ABN Amro analysts. They noted that, on an index level, covered bond spreads tightened 3bp in the first half, in spite of the strong net positive supply, meaning that tightening across the year could reach 8bp.

As well as supply technicals, they cited attractive relative value versus government bonds and SSAs, and cheapness versus senior bonds.

The survey’s overall score, reflecting conditions for both covered and unsecured bonds, is 11, down from 17 in December, but still the second highest since the survey was launched in December 2022. Pfandbriefe’s score of seven has halved from the last survey, but is only the second positive score recorded, while for unsecured, the score fell from 22 to 16.

In the Issuance Climate survey, vdp members assess a variety of drivers in the capital markets environment and their impact on issuance plans over the past six months, today and in the coming six months, and assign these a score from minus 100 to plus 100. These factors are then weighted and combined into an aggregate score for Pfandbriefe, unsecured bonds and overall issuance. Thirty-four issuers contributed to the latest edition.

“The vdp Issuance Climate survey reflects the currently upbeat mood among capital markets experts,” said Steffen Stachna, senior manager, capital markets, at the vdp (pictured). “Regarding the coming six months, the outlook is slightly subdued, but all in all, still positive.”

Sources for charts: vdp, Börsen-Zeitung; Graphic: www.igrafik.de

Contributing to the current high score of 71 for investor demand for Pfandbriefe – only slightly down from 78 in December and well above the score of 22 expected at that time for the first half of the year – is a score of 37 for oversubscription levels at present (46 in December). This has come at the same time that Pfandbrief issuance, at some €35bn, has matched last year’s volumes.

“That’s in spite of the geopolitical developments we’ve seen this year, particularly in the Middle East, which led to fewer issuances in March and April,” said Stachna. “Indeed, we saw sufficient demand to comfortably absorb a large portion of the funding requirements foreseen for the whole year – even in longer maturities.

“We expect the second half of the year to be quieter, as is traditional,” he added. “We could expect that to have a stabilising effect on spreads, which have actually been quite stable for the year.”

Investor demand is expected to moderate over the next six months, with a score of six for Pfandbriefe. Oversubscription levels are seen remaining buoyant, but spreads against swaps and particularly Bunds are expected to weigh on demand levels.

The interest rate trend is a strong plus across secured and unsecured products, at 59, and much higher than the score of five recorded in December. The vdp also asked respondents their views on the direction of yields and just over 60% expect the 10 year Bund yield to rise slightly from around 3.0% currently to between 3.0% and 3.2% by year-end, with yields having already risen some 20bp this year – something not widely forecast at the start of this year.

In the first five months, new Pfandbriefe totalling €32.2bn were issued, up 2% versus 2025, with mortgage Pfandbriefe contributing €23.8bn (up 6%) and public Pfandbriefe €8.4bn (down 8%). Benchmark Pfandbriefe of €20bn were issued up to the end of May – accounting for around one-fifth of overall benchmark covered bond issuance.

According to Stachna, some €25bn of Pfandbrief issuance is expected in the second half of the year, more than half of it in benchmark format, with benchmark Pfandbrief issuance for 2026 therefore ending at around €35bn.

The only previous covered bond in EU Green Bond (EuGB) format has been a €1bn three year issued by Nordea Mortgage Bank in March. Take-up of the format by banks overall has been only gradual, as they have worked to understand and meet the requirements of moving from issuance under the ICMA Green Bond Principles to the EU Green Bond Standard.

“The discussions around the Taxonomy and then bringing the standard to life was a very long process,” said Anne-Laure de Saqui de Sannes, head of financial solutions at BPCE. “Like many others, we were initially kind of sceptical, but we followed developments and, with the help of the Natixis Green Hub, focused on what we would be able to do.

“And once it was established and we knew exactly what it would mean to issue an EuGB, it was a natural step for us, because it perfectly fits the strategy that we have at Groupe BPCE level, our transition plan and the decarbonisation of the economy.”

BPCE has also been keen to be at the vanguard of new sustainable developments in the bond market, as evinced by its issuance: the latest deal is BPCE SFH’s seventh green covered bond, while a variety of entities of the French group have issued a range of other green and social bonds, some of theme themed, as well as an innovative “defence bond” in September 2025.

“As an issuer in the sustainable finance market, keeping being innovative and offering scalability to investors is really close to our hearts at BPCE,” said de Saqui de Sannes, “and being one of the first to issue an EuGB was a way to achieve that.

“It’s the highest standard in sustainable finance right now.”

While the first issuers of EuGBs have at times found the process – including interpretation of the new standard and interactions with regulators – challenging, BPCE found the process relatively smooth, according to de Saqui de Sannes, with the issuer able to learn from the examples of preceding EuGB issuers as well as benefit from Natixis’s experience in such issuance.

“Regarding data and the full Taxonomy alignment,” added de Saqui de Sannes, “the key thing is that, as a French bank, we have already released our Green Asset Ratio, and all the assets we use in this cover pool are within the GAR. So we already had some data and on that side things went well.

“What we did have to double-check and explain to the external reviewer was how we were handling climate risks and evaluating physical risks – here, we have a methodology based on data sourced externally.”

Preparing the associated EuGB factsheet meanwhile took less time than preparing a new green framework, according to de Saqui de Sannes.

“It was a question of being perfectly straightforward and clear – not saying too much, but not saying not enough, either.

Some quirks of the EuGB standard nevertheless emerged during preparations. For example, under the regulation, BPCE must publish the first allocation report either one calendar year after issuance or by 31 December, meaning that it cannot be aligned with its ICMA-aligned green bond reporting, which de Saqui de Sannes said is not very practical.

“But overall,” she concluded, “we did so much work on Taxonomy alignment before the EuGB, and it’s something we have placed such emphasis on, that the whole process was frankly easier than I would have expected, even if it still involved a lot of work many different people.”

A combination of factors played into BPCE’s decision to focus its EuGB issuance on BPCE SFH and French residential mortgages in its cover pool.

“Firstly, it makes sense because we finance more than €369bn of mortgages, and buildings are responsible for some 40% of carbon emissions,” said de Saqui de Sannes. “Secondly, it is much easier to demonstrate Taxonomy alignment for some activities than others, and we chose 7.7 – acquisition and ownership of buildings – because we are more advanced for this when it comes to the GAR, also given the importance of mortgages on our balance sheet.

“And thirdly, we had to ask ourselves, what will be the narrative and the link for investors in our EuGB strategy? We thought it would be rather confusing to, for example, issue one unsecured EuGB but the next then be not EuGB but ICMA, and hence to say that the new standard could apply to any instrument. We wanted to be perfectly clear in our plans and – since we are a big issuer of covered bonds – it made sense for us to use the standard only for covered bonds.”

Many banks have focused their green bond issuance in unsecured instruments where the format may offer a greater de-risking effect in execution and any greenium may be more evident than in than in the more dependable and tighter covered bond asset class. The resultant lack of green covered bond issuance has contributed to demand for BPCE SFH’s issuance, according to Cédric Perrier, head of medium and long term funding, Groupe BPCE.

“This is evident each time we meet with investors,” he said. “They are asking, when is your next green covered bond? Also, within our group, CFF is not issuing green. So it’s really something that ticks a lot of boxes for us internally and vis-à-vis the market.”

BPCE teed up its inaugural EuGB issuance when it published its factsheet on 5 May and, with the issuer typically hitting the market at this time of year, a debut issue was anticipated. The issuer meanwhile felt comfortable approaching the market without a roadshow given its existing green bond credentials and the growing volume of EuGBs, including Nordea’s in covered bond format.

This gave BPCE an added bonus of being able to move quickly in a market that has this year proven volatile on the back of the Iran war and periodic outbursts from US president Donald Trump.

“Being out in the market for more than a day or half a day has been getting trickier and trickier,” acknowledged Perrier.

He noted that the market in general and specifically French government bonds had been relatively stable going into the new week, while the start of the new month offered a good dynamic vis-à-vis investors.

The six-and-a-half year maturity, he added, was also on the safer side – BPCE SFH’s last two green bonds, in May 2024 and June 2025, were 10 year deals. As well as suiting the market and issuer ALM needs, the shorter tenor chosen this time mitigates potential challenges issuers might face in meeting EuGB asset eligibility requirements on longer dated issuance.

On Monday morning (1 June), leads Danske, Deutsche, DZ, ING, Natixis, NordLB, Santander and Swedbank opened books with guidance of the mid-swaps plus 43bp area for a euro benchmark-sized January 2033 issue, expected ratings Aaa/AAA (Moody’s/S&P).

After around an hour and a half, the leads reported books above €3bn, including €475m of joint lead manager interest, and after around two-and-three-quarter hours, they set the spread at 36bp for a size of €1.25bn-€1.5bn on the back of books above €4.4bn, including €545m of JLM interest. The size was after around three hours set at €1.5bn on the back of more than €5bn of orders.

The final book was above €5bn, with some 120 accounts allocated.

“I was expecting a nice transaction, but having more than €5bn in the book was not a given,” said Perrier.

Banks and private banks were allocated 52%, asset managers 27%, central banks and official institutions 15%, insurance companies and pension funds 5%, and others 1%. Germany, Austria and Switzerland took 24%, the Nordics 23%, the Benelux 16%, France 13%, southern Europe 12%, the UK and Ireland 10%, and others 2%.

“The Nordic share was very strong,” highlighted Perrier, “much more than we have seen previously – they also received good allocations, because the quality was high.

“That’s probably down to a combination of factors: they take ESG very seriously, we have made some marketing efforts there, we had the support of two Nordic leads, and they may have also been educated by Nordea’s EuGB.”

Allocations to accounts deemed green-oriented accounted for 61% of the paper, compared to 65% and 67% on BPCE SFH’s last two green covered bonds.

The pricing of 36bp over mid-swaps was seen as flat to fair value. The perennial challenge of calculating any greenium was further complicated by the magnitude of the trade, according to Perrier.

“In the beginning, I had €1bn to €1.25bn in mind,” he said, “but the quality of the order book was so good, and because this was our inaugural EuGB, we decided to go for a bigger size and have a very visible transaction, as well as ease the allocation process.

“So it’s difficult to call a greenium – maybe we could say 1bp – but in this context a successful and larger transaction were the priorities.”

Although several EU banks have issued EuGBs since the Netherlands’ ABN Amro became the first financial institution to do so in February 2025, none had yet issued an EuGB in covered bond format. Some have noted the greater differential in execution – in terms of greenium, for example – achievable in unsecured green bonds, while the availability of appropriate assets and potential additional reporting requirements have been cited by others as a reason they have not issued EuGB covered bonds.

Nordea Mortgage Bank, the group’s Finnish covered bond issuer, previously sold three euro benchmark covered bonds under the Green Bond Principles (GBP) managed by ICMA, most recently a €750m three year in March 2025, while the group’s other Nordic covered bond issuers have similarly tapped local currency markets.

Keil, head of covered bonds at Nordea, said the banking group wanted to demonstrate its leadership in sustainable finance through the issuance of the first EuGB covered bond.

“We see ourselves as the leading sustainable issuer in the Nordics and want to remain at the forefront of developments,” he said. “This first ever EU Green Covered Bond and first EuGB from a financial institution in the Nordic region is a testament to that role and that ambition.

“Being an early adopter of EU regulation also shows our support for EU efforts to transition to the low carbon economy,” he added. “We haven’t yet seen where EuGBs will end up, but we are willing to push forward and lead the way in this area, to help strengthen their credibility and minimise the potential for green-washing.”

The additional requirements of EuGB regulation have contributed to only gradual take-up of the format by financial institutions so far, and Keil testified to the work the format involves.

“With a big team effort across the organisation,” he said, “we have spent a lot of time internally in establishing a truly robust internal set-up on processes to screen and select Taxonomy-aligned assets, and also meet the requirements on impact and allocation reporting as well as attain validation by our external reviewer. In EuGBs, we have stronger supervisory oversight compared to a traditional ICMA bond, and it is reflected in a robust internal governance.”

Nordea published the associated (six page) factsheet, which is required for EuGBs, on Monday, alongside a pre-issuance review from ISS confirming alignment with EuGB regulation and the EU Taxonomy. The factsheet notes that the EuGB also meet the GBP.

The proceeds from the bond will be used to refinance a Finnish portfolio of Taxonomy-aligned retail mortgages that support energy efficient housing. The portfolio is broadly similar to that eligible for the bank’s previous green bonds, even if EuGB requirements are stricter.

Nordea’s deal hit the market after the first two days of the week passed without any financial institutions supply in euros on the back of the latest bout of volatility, particularly evident on Monday. Improved sentiment on Tuesday nevertheless encouraged issuance in other asset classes and currencies, and on Wednesday, alongside Nordea, Australia’s Westpac sold a €1bn short five year covered bond, with further FIG supply in senior and even AT1 formats. The two covered bonds were the first new euro benchmarks in the asset class since Tuesday of last week (17 March).

“Our ambition has over the last years been to come with a green covered from each of our four mortgage companies each year as part of our sustainable issuance ambitions,” said Keil (pictured). “With that in mind, we decided to proceed with this after seeing the relatively constructive tone yesterday.

“The three year tenor meant that the offering was already on the defensive side, and it’s also a good spot on the curve currently,” he added, “but then the green format, and furthermore the EuGB format, makes it stand out more in a market like this.”

Leads Crédit Agricole, Deutsche, DZ, Nordea and SG opened books with initial guidance of the mid-swaps plus 16bp area for a euro benchmark-sized April 2029 issue, expected rating Aaa. After around two-and-a-quarter hours, they reported books above €1.25bn, including €100m of joint lead manager interest, and an hour later, the spread was set at 11bp for a €1bn size on the back of books above €1.4bn. The final book was above €1.37bn, including €100m of JLM interest, with around 50 accounts participating.

“We saw a positive opening of the market, but you never know these days, so we went into this aware of the volatility and headline risk,” said Keil. “But from the get-go we saw that the book was building well, and we were able to land at a very good level.”

The spread of 11bp over mid-swaps is the tightest on a euro benchmark covered bond since October 2023, when Germany’s LBBW sold a €500m three-and-a-half year public sector Pfandbrief at the same level.

“That goes to show how the resilience of the euro covered bond market amid volatile markets,” said Keil, “but also how this is reinforced by the addition of a green or EuGB label to an issuance.”

Around three-quarters of the deal was allocated to investors with strong sustainability commitments or ESG-dedicated funds, according to the issuer and leads’ classification, which Keil said was overwhelming.

“We were absolutely happy with the level of interest and the fact that we saw so many dedicated ESG investors,” said Keil. “That share is much larger than on our previous green bond issuances in traditional ICMA format, suggesting that this EuGB format can reach a broader range of investors.”

Banks and private banks took 55%, asset managers 24%, central banks and official institutions 10%, insurance companies and pension funds 7%, and corporates 4%. Germany, Austria and Switzerland were allocated 54%, the Benelux 23%, France 12%, the Nordics 6%, Italy 3%, and the UK and Ireland 2%.

The leads put the new issue premium at 2bp and claimed a greenium of 1bp, although Keil acknowledged that this was hard to assess in current markets.

“Again, we see less greenium in covered formats than in senior and subordinated, so this was in line with what we expected, rather than any sudden improvement on this EuGB,” he added. “And maximising greenium is not the underlying motivation for using the EuGB format.”

Having debuted in the format, Nordea expects to stick with it, even if GBP green bonds are expected to co-exist with EuGBs for the foreseeable future.

“We have done this because we believe in the format,” said Keil, “and we believe there is a future here. Our intention is not to do it once and then go back to issuing in ICMA format.

“It will depend on how the market evolves and how issuance is received, but based on yesterday’s deal, there is clearly an interest among investors, so, all else being equal, we will probably pursue the path of EuGBs going forward.”

As well as covered bond issuance in local currencies from its other issuers in Denmark, Norway and Sweden, Keil said Nordea could also consider unsecured EuGBs.

On 23 February, LBBW launched the tender for up to €750m of a mix of mortgage and public Pfandbriefe in maturities ranging from November 2026 to July 2029 totalling €4.65bn. Caps for individual lines were set to ensure retention of ECB/LCR and index eligibility.

The German bank also went out with a €500m no-grow eight year public Pfandbrief in its first benchmark since May 2025, when it issued a €500m 10 year public Pfandbrief.

LBBW first engaged in a liability management exercise two years ago, for its Additional Tier 1 (AT1) issuance, and turned to it again when looking at its funding programme for this year and liability structure, according to head of funding Martin Rohland.

“On the AT1, we had a different target, which was to keep investors in the credit and derisk the new issue,” he told The CBR, “but at the end of the day, it was helpful in opening up a new tool for us to use.

“When we looked at our liquidity position coming into this year, our numbers are a bit smaller than last year, when – including Berlin Hyp – we were quite active, so we thought, how can we pro-actively manage this?”

The bank therefore targeted the six short-dated benchmarks, while issuing a new longer dated transaction.

“It’s an optimisation of the bank’s liquidity stack and its structural liquidity position,” said Andreas Wein, head of funding and debt investor relations at LBBW. “We felt that we could make use of the current market environment to do this and also return after having been absent since May last year.”

The new €500m no-grow February 2026 issue, rated Aaa, was priced at mid-swaps plus 22bp on the back of a book of some €1.18bn (including €175m of joint lead manager interest), following guidance of the 27bp area.

Forty-eight accounts were allocated, 55% going to banks, 22% to central banks and official institutions, 18% to asset managers and fund managers, 4% to insurance companies and pension funds, and 1% to other investors. Germany, Austria and Switzerland took 57%, the Benelux 18%, the Nordics 8%, southern Europe 7%, the UK and Ireland 5%, and other 5%.

While the market was not experiencing the heady order books of the start of the year – when LBBW might historically have been expected to hit the market – the bank was able to tap into attractive levels with its new issue.

“We started the year with a very comfortable liquidity position,” said Wein, “hence, we had no need to be first out of the blocks. We kept monitoring the market and saw that spreads were only going in one direction, and at the end of the day managed to issue at pretty much the lowest day of the year so far – although you could say that was as much down to luck as skill.”

The market subsequently softened as Israel and the US attacked Iran, with estimates last week suggesting LBBW might have had to pay 4bp more for such a new issue in the wider market, which saw no new euro benchmark covered bond issuance. The new issue was nevertheless stable at or slightly inside re-offer, according to Rohland.

The tender offer closed last Tuesday and, with €1.049bn of bonds (23%) tendered by investors, LBBW decided to buy back as much as €1bn, 95% of the tendered amount and 22% of the outstandings.

“We included a wide range of short dated paper – some of it above par, some below – to give the biggest audience the chance to participate,” said Rohland, “and we were quite pleased that it was not all skewed in one direction or the other.

“Some of the investors who tendered took the premia so they could buy some new, longer dated paper, while others used the money for different purposes.”

He noted that the Iran war did not have any noticeable impact on the conduct of the liability management exercise.

“It was definitely a greater success than we would have hoped for or expected,” added Wein, “so we are extremely pleased. It also shows a good mutual engagement with the large professional investors who were active in both legs of the transaction, which can only be conducive to business with them going forward.”