Covered bond issuers and investors alike have found the going surprisingly easy in the opening months of 2024. In this roundtable, representatives from the buyside and sponsor Crédit Agricole CIB examine how factors such as monetary policy, funding needs and relative value are driving the market, and what risks and opportunities may lie around the corner.

1. The Covered
Bond Report
Covered Bond
Investor Roundtable
www.coveredbondreport.com March 2024

2. 2 The Covered Bond Report March 2024
IN ASSOCIATION WITH CRÉDIT AGRICOLE CIB
Neil Day, The Covered Bond
Report: Euro benchmark issuance
volumes were forecast to fall about
10% this year, but with supply
front-loaded, and, indeed, we saw
a bumper start to the year. What is
shaping volumes and what can we
expect across 2024?
Florian Eichert, Crédit Agricole CIB:
We saw €200bn-plus of issuance in 2022,
then around €190bn last year, and the
consensus for 2024 was €170bn-€180bn,
give or take — so a gradual reduction
in funding volumes compared to the
2022 peak. My 2024 forecast is even a bit
lower, about €160bn, so around €30bn
less than last year, and with around
€100bn yet to come this year.
The main story you’ve had since
2020 has been, firstly, the ECB replacing
funding through the TLTROs, which led
to issuance volumes undershooting for
a couple of years, then an overshooting
compared to historical averages as banks
had to repay, either early or when they
came due, those amounts. And this year
is about returning towards more normal
volumes. It might not have felt like that
at the start of the year, with January sup-
ply being on a faster trajectory than the
past two years. But the TLTRO refinanc-
ing theme is no longer with us, or only
to a very small extent.
So funding is now back to questions
such as, do you have asset growth that
needs to be financed? In most cases, the
answer is, no. Then it’s down to, do you
need to replace funding away from the
ECB with other funding sources? That
takes us to the whole discussion around
potential deposit outflows, retail and
non-financial corporate deposits. To me,
that has been the big driver for banks
to have started the year so actively, with
core European banks funding in size.
We’ve had the regional bank crisis in the
US, we’ve had Credit Suisse. Supervisors
are putting a lot more pressure on banks
to err on the side of caution on this
front. So the aggressive attitude towards
funding that we’ve seen wasn’t driven
by asset growth; it was precautionary
funding to be ready in case banks get
these outflows at some point later in
the year. Thing is, in my view, I don’t
think they will get them. There has also
been uncertainty around what the ECB
would do about the Minimum Reserve
Requirement, with some banks erring
on the side of caution. But, again, the
outcome was less bad than feared.
And unless there are major sur-
prises in asset growth, I expect funding
needs towards the end of the year to be
materially lower than last year. Last year
banks typically upsized funding targets,
but this year I would rather expect the
reverse. And as banks have already done
so much this year, you will have a more
meaningful slowdown as we as we move
further into 2024, so the second half
could already be all about pre-financing
for 2025 for some banks.
Day, The CBR: What are your
expectations when it comes to
supply? And how have you been
positioned going into 2024?
Masa Mihailovic, APG: As for supply,
I think it will still be quite high. The
start of the year has been quite busy, es-
pecially that first week, but it also started
quite healthily, with all the deals going
quite well, which maybe spurred some
issuers to come early. It’s a pretty strong
market and some issuers are yet to come,
while there are still quite some redemp-
tions this year. So maybe supply won’t be
Covered Bond
Investor Roundtable
2024
Covered bond issuers and investors alike have found the going surprisingly easy in the opening
months of 2024. In this roundtable, representatives from the buyside and sponsor Crédit
Agricole CIB examine how factors such as monetary policy, funding needs and relative value
are driving the market, and what risks and opportunities may lie around the corner.

3. March 2024 The Covered Bond Report 3
IN ASSOCIATION WITH CRÉDIT AGRICOLE CIB
as big as last year, but I think there’s still
plenty to come.
Of course, some of the issuers that
haven’t yet issued in euros may have
been absent because they have found
other currencies more attractive. That’s
playing into supply, because it is a lot
of the non-European issuers that we
haven’t yet seen.
Henrik Stille, Nordea IM: Our view
on supply is probably at the lower end
of expectations. In Europe, we just don’t
see the growth on the asset side that
would trigger as much funding as in
the past couple of years, and we don’t
have the same repayments of TLTROs.
And when we look at the banks on an
aggregated basis, they also seem very
well funded, they have excess liquidity.
It’s difficult to see them issuing more
covered bonds just to increase the level
of excess liquidity even further. And
then I’m not so concerned about deposit
outflows on an aggregated basis in Eu-
rope. The system is simply different than
in the US. Of course, that doesn’t mean
that a single bank can’t face deposit
outflows if they run into difficulties, but
those deposits should then just go into
another bank. So we’re unlikely to see
an aggregated outflow of deposits that
would trigger more covered bond issu-
ance across the whole banking system.
When it comes to valuations, we
already had the view at the end of last
year that covered bonds are attrac-
tive versus the broader credit market.
Covered bonds are attractive versus
senior financials, as we see it, but we
also think that financials are attractive as
an asset class versus non-financials, so
covered bonds are attractive versus the
broader corporate bond markets as well.
We think there is quite a lot of room
for performance versus the broader
credit markets, especially if we go into
an environment that is less risk-friendly
than what has been the case over recent
months.
Laure Donsimoni, Amundi: The be-
ginning of the year has indeed been very
busy. We’ve seen books growing week
after week — they were oversubscribed
from the start, but got progressively
bigger. I think we are seeing some new
buyers for the asset class, which should
ultimately help it tighten at some point.
As a credit PM, I would say that rela-
tive value versus senior bonds is pretty
tight as of today — we’ve seen this this
tightness before, but not for some time
— and it’s something that investors will
play. I agree that the situation in Europe
is not the same situation as in the US,
Laure Donsimoni, credit portfolio manager,
Amundi
Florian Eichert, head of covered bond and SSA
research, Crédit Agricole CIB
Vincent Hoarau, head of FIG syndicate, Crédit
Agricole CIB
Masa Mihailovic, portfolio manager, credit, APG
Olaf Pimper, portfolio manager, Commerzbank
Henrik Stille, portfolio manager, Nordea IM
Stéphane Taillepied, financial analyst, Amundi
Neil Day, managing editor, The Covered Bond Report
Participants in the roundtable, which was held on 7 March (left to right, top then bottom):

4. 4 The Covered Bond Report March 2024
IN ASSOCIATION WITH CRÉDIT AGRICOLE CIB
and banks are strong — we’ve even seen
southern European countries and their
banks improving — so covered bonds
will attract more and more interest.
When you can buy a triple-A at 50bp,
even 40bp, it’s attractive.
Olaf Pimper, Commerzbank: I think
there are several factors behind the
improved demand for covered bonds.
Firstly, there is a prevailing expectation
in the market that interest rates have
peaked. Secondly, the record supply year
of 2023 might have moved covered bond
spreads a little bit too far from fair value.
This is why spreads are very attractive at
the moment compared to many other as-
set classes, for instance SSAs and senior
preferred. And thirdly, it really looks like
many investors have found their way
back to the covered bond market. It is
not mainly bank treasuries anymore that
are buying in the primary markets.
Vincent Hoarau, Crédit Agricole
CIB: We are in quite a unique situation.
Describing the start to the year as robust
would be an understatement.
What has changed in 2024 versus
2023 is simply investors’ perceptions
towards the asset class. 2023 may have
been a record year in terms of issuance,
but it was also a very, very challeng-
ing year for covered bonds, for issuers.
The market had to digest the negative
legacy of a decade of quantitative easing,
including technical distortions, particu-
larly in the secondary market, with the
unreliability of reference points kept
insanely tight by Eurosystem purchases.
But after a year of repricing across juris-
dictions, we started 2024 with healthier
trading metrics, to echo Masa. Relative
value schemes made much more sense
than in the past couple of years, particu-
larly after the Austrians, Germans and
Dutch repriced very quickly in January
amid new issues. Secondary market
liquidity has improved significantly, too.
As such, it is a product that globally is
becoming much more appealing.
The buyer base is growing. We have
been talking about the asset class to
more and more people who we used to
discuss senior pref, non-pref, Tier 2 or
even Tier 1 with, but who currently see
a lot of value in covered bonds. This is
a very positive development, because a
bigger buyer base and greater liquidity
can only fuel further positive momen-
tum. That’s why things have been going
so well in primary so far and we have
also seen deal after deal perform in the
secondary market. It’s a complete change
of dynamic, to the benefit of issuers,
but also investors, because while issuers
clearly like the spread, investors like the
yield. It’s a good balance and at the end
of the day everyone is quite happy.
Day, The CBR: Is this sustainable?
Will there be constraints on de-
mand or other risks that could spoil
the party?
Eichert, Crédit Agricole CIB: As
Vincent mentioned, the change in mo-
mentum has been dramatic. Last year we
were in a market where weakness fed into
more weakness. Trades didn’t go well,
and that didn’t really instil confidence in
those who had passed on the previous
transaction to move into the next one
— and spreads were still on an upward
trajectory. The closer you get to year-
end, the less aggressive are dealers, who
have all lost money during the year, with
spreads structurally moving wider — it’s
not like you can go short in covereds,
despite liquidity being better. So everyone
was waiting and hoping for a good start
to 2024. And then one or two trades went
OK, and that unleashed an avalanche of
demand that had already been building
up in the latter half of last year but hadn’t
yet decided to actually jump in. At the
start of the year, pretty much everyone
jumped at the same time.
How sustainable is that? Let’s start
with possible constraints, because there
are some. I do come across investors,
especially bank treasuries, who tell
me, look, we’ve already bought a lot
over the past two years and we can no
longer add, at least certain sectors or
certain issuers, mainly smaller, less well
known or domestic-focused names. For
example, some German bank treasuries
no longer have additional credit lines
for some of the Austrians, and they may
be very close to limits on names such as
BPCE that have issued so much. So it’s
not like everyone is happy and is adding;
there are investors who are happy with
levels but can no longer add. And even
if books seem crazily large wherever
you look, not every issuer is being lifted
by that tide — those who have in the
past relied heavily on banks are facing
constraints.
But the moment you step beyond
such issuers, it doesn’t feel like we’re
anywhere near the limits of demand.
It’s effectively taken bank treasuries a
year and a half of active and aggressive
buying to move the needle on their port-
folios, from holding only ECB deposits
to a more balanced mix of bonds and
deposits. Similarly, on the real money,
asset management side, if you’re a large
institution with big aggregate funds,
two months-worth of supply isn’t really
going to change your overall portfolio.
If they’re trying to extend duration be-
cause we’re close to the start of rate cuts,
for example, it’s something that takes
more time.
Unless something very big and
systemic happens — the big picture rates
Florian Eichert,
Crédit Agricole CIB: ‘It doesn’t feel
like we’re anywhere near the limits
of demand’
‘We started 2024
with healthier trading
metrics’

5. March 2024 The Covered Bond Report 5
IN ASSOCIATION WITH CRÉDIT AGRICOLE CIB
narrative changes, or credit suddenly
widens more meaningfully — I don’t see
us slowing down anytime soon. We still
have the chance of the odd hiccup here
and there, or the odd trade that looks
weak in an overall strong market. But
individual trades that don’t go well no
longer have the same level of contagion
effect. Bausparkasse Schwäbisch Hall
didn’t manage to price its 10 year in June
last year, so the 10 year segment was
closed for some time, but if something
similar were to happen today, I don’t
think it would hit the wider market,
just others that are very close to that
issuer or even only that issuer itself.
Take Aareal and pbb as an example: that
impacted only two or three issuers. Even
the Landesbanks that have commercial
real estate exposure on their balance
sheets were not impacted spread-wise in
any meaningful way, just 2bp-3bp. So it
does feel like it’s a very structural shift
on the buyer side, in conjunction with a
structural break on the wider rates mar-
kets, with central banks having hiked
rates for a long time, but now close to
cutting. Bigger portfolios are shifting
and covereds benefit from it because
they look good in relative terms versus
other asset classes.
Pimper, Commerzbank: I would not
rule out that some of the main inves-
tors of last year are facing some capacity
constraints. On the other hand, it really
seems that other investors, who did not
show up last year, are now returning to
the market. Yields and spreads are juicy
compared to the long-lasting negative
interest period together with the several
central bank buying programmes, and
also the long end of the curve opened
again, attracting the long term inves-
tors like insurers and asset managers.
Therefore, I think as long as yields are
high and spreads are at elevated levels,
demand will stay high.
I really think spreads have peaked.
I have to admit that I was expecting
the peak already by the middle of last
year, but the huge supply together with
lower demand, especially in the last four
months of 2023 came as a surprise to me
and made spreads move even further.
Now with increased demand and nor-
malised supply, I don’t see any reason for
spreads to widen further.
Donsimoni, Amundi: With more and
more investors stepping into the asset
class, we now need to see spreads broad-
ly tighten. As Vincent said, we have seen
some very nice performance of new
issues on the secondary market — take
Crédit Agricole Italia or even Commer-
zbank, for example. But when I look at
the average spread of the indices, it’s not
really moving. Does the market perhaps
need to actually see and hear the ECB
cutting rates for that to happen? Or is
it maybe just because investors who are
buying covereds are keeping them and
not actively trading? There’s not much
turnover and liquidity is pretty poor. But
I am expecting spreads to tighten from
here — I don’t see why they wouldn’t.
Mihailovic, APG: I’m a little bit more
bearish. As I said, we think there’s still
quite some supply to come and we don’t
really anticipate much tightening amid
such supply. People are just buying in
primary and that’s performing, but I
don’t really see the old bonds doing
much, even if they are more stable and
aren’t widening anymore.
I think liquidity right now is actually
pretty good. I’m quite active and I feel
secondary trading is pretty healthy again
— I can find liquidity everywhere I need
it. But, again, it’s more active in the re-
cent issuance than in these older bonds.
Pimper, Commerzbank: The second-
ary market is indeed worth a look again
these days. Some of the old inventory
from traders’ books still look attractive.
And we are also looking at secondary
markets again, when new issue spreads
are on or even below the secondary
curve. But it is difficult to source bonds
at the screen levels.
Eichert, Crédit Agricole CIB: On
Laure’s point about the index tightening,
or rather not tightening, it’s a tricky one,
because of all the distortions remaining
from the covered bond purchase pro-
grammes. The index still includes a large
amount of old bonds that were bought
in fairly large size by the Eurosystem and
are never going to see the light of day
Laure Donsimoni, Amundi:
‘I am expecting spreads to tighten
from here — I don’t see why they
wouldn’t’
‘We don’t really
anticipate much
tightening’
MAN CANNOT DISCOVER NEW OCEANS UNLESS
HE HAS THE COURAGE TO LOSE SIGHT OF THE SHORE
Bloomberg: € = BGCS2 Global Directory = BGCP

6. 6 The Covered Bond Report March 2024
IN ASSOCIATION WITH CRÉDIT AGRICOLE CIB
again, so free-float is negligible or non-
existent, and their spreads tend to be
very sticky. The more of that stock that
matures, the more realistic the index
level will become, but that will be a fairly
long term process.
In terms of the more recent issuances,
at the start of the year there was so much
supply that there was little time to focus
on secondaries, but now that we’ve start-
ed to see new issue premiums come all
the way down to zero or even negative,
there is interest in secondary markets as
well, with some investors rather going to
dealers than buying in primary. So I do
expect some level of tightening.
But as Masa said, how much can you
realistically tighten? How much can
you tighten in a 10 year tenor when the
European Union December 2034 is at
plus 31bp-32bp versus swaps. Certain
markets act as a floor, so even if I’m
positive on spreads in general, you
can’t expect the 10 year part to sud-
denly be 10bp tighter, because it would
mean levels that make zero sense versus
SSAs. So there are several moving parts.
And while I’m positive overall, that’s
not universally applicable across the
entire market. Can the small Germans I
referred to earlier tighten? I don’t think
so. Can a five year Canadian tighten?
Absolutely. Can Crédit Agricole Italia
tighten? Unless BTPs widen out materi-
ally, I suppose so.
Stille, Nordea IM: Indeed, there
are many parts of the market that can
tighten, but there are probably also parts
that cannot tighten.
Over the last week, we have started to
see new issues being priced tighter, and
actually too tightly, with many second-
ary bonds trading much wider than the
new issues. The latest DNB is a good ex-
ample. That might, of course, be because
there is no free-float in those old bonds.
But still, I think this should slowly start
to correct.
To expand upon what I mentioned
earlier, overall, I don’t so much see the
case for tightening versus swaps, but
rather outperformance versus the broad-
er credit markets, especially if there is a
less risk-friendly environment, which I
think we will eventually have this year. I
also see a strong case for more tighten-
ing versus government bonds, where
the supply dynamics are much more
difficult. And given that EU bonds are
much more correlated with govern-
ment bond markets, it’s not impossible
that covered bonds can tighten even if
EU bonds don’t tighten, if government
bonds are meanwhile widening. So we
could see covered bonds outperform
both government bonds and SSAs going
forward — although, again, that doesn’t
necessarily mean that we will tighten
versus swaps.
And then if you look across the dif-
ferent regions, we currently have quite a
strong view on regional allocation, with
a preference for southern Europe, east-
ern Europe and Southeast Asia, while we
don’t buy that much from the Nordics
and not Germany [Henrik, could you
perhaps clarify if the latter is “nothing
from Germany”, or like the Nordics, so
maybe “we don’t buy that much from the
Nordics, nor from Germany”]
Hoarau, Crédit Agricole CIB: I am
in Henrik’s camp. The way we look at
it — and also this is the feeling we get
from those newcomers who are seriously
looking at the asset class — is, you are
here to enjoy the carry. Performance ver-
sus swaps is certainly limited. People are
here to play the compression of non-core
versus core regions, particularly with the
stronger momentum in southern Europe
versus core Europe. Where I am in
complete agreement with Henrik is on
the potential for outperformance versus
the SSA world. I’m indeed concerned
about the evolution of the SSA space —
if you look at supply so far this year, we
are at 30%-plus versus the same period
last year, swap spreads are coming down
nicely, and the secondary performance
of the most recent big SSA trades and
syndicated EGBs is already sending
negative signals. And looking ahead this
year, we could add into the equation
the geopolitical context, the funding of
European defence spending, a Trump
election, question marks around France
and potentially its rating trajectory, a
lot of negative news around the German
economy… So there is certainly scope
for a strong performance of covered
bonds versus SSAs. Underperformance
of SSAs could nevertheless also establish
some resistance to the performance
of covered bonds. All this means that
while I don’t see any reason why covered
bonds as an asset class should widen this
year — and we definitely saw the peak
at the beginning of the year — the scope
for performance versus swaps is rela-
tively limited. So, as an investor, either
you come in and enjoy the carry, or you
choose something else.
Stéphane Taillepied, Amundi:
Regarding regional variations, we have
been very surprised to see Spanish banks
absent amid this buoyant covered bond
activity. What is the reason for this?
Eichert, Crédit Agricole CIB: The
Spanish don’t need as much liquidity
as the Italians do, and they would, at
this point, still prefer to issue senior
preferred for liquidity purposes, or carry
on with meeting their MREL targets via
non-preferred or Tier 2 issuance. San-
tander, for example, started with a big
Henrik Stille, Nordea IM:
‘We have started to see new issues
being priced tighter, and actually too
tightly’
‘There is certainly
scope for a strong
performance vs. SSAs’

7. March 2024 The Covered Bond Report 7
IN ASSOCIATION WITH CRÉDIT AGRICOLE CIB
dual-tranche cédulas last year, but began
2024 with a triple-tranche senior. There’s
not a lot of asset growth, while deposits
are really sticky, so they don’t need to
replace anything on their liability side.
And in the meantime, they just focus
on what they feel is the best value in
terms of funding, and for names such as
Santander, it’s senior at the moment, not
covered. Some other banks are in a simi-
lar position: a number of non-Europeans
have simply taken the decision to pause
on covereds and go for senior preferred
as the two products trade relatively close
to each other. So we’ve just seen smaller
issues out of Spain — I imagine there’ll
be a few more, and maybe we’ll have a
bit of pre-funding towards the end of the
year for the larger institutions, too.
As for the Italians, you have a sover-
eign that issues into retail every second
month, and you have deposit outflows
because the money goes into these retail
BTPs. Hence, there is a bigger natural
need for pure liquidity funding than in
Spain. As for the Portuguese, who have
been relatively active, it’s more strategic
and in some cases also all about re-
establishing themselves as issuers.
Day, The CBR: What about non-
European supply? Are the drivers
similar to the Eurozone, e.g. exiting
central bank funding? We haven’t
seen much — but, then again, TD
just executed the biggest ever euro
benchmark transaction.
Eichert, Crédit Agricole CIB: It
depends on the jurisdiction. For the UK,
Australia, New Zealand, the theme is the
same, albeit with a lag, because the time-
line isn’t the same. The Canadians only
had brief help from the central bank
at the start of the pandemic but were
quickly on their own again, so that isn’t
a factor. The huge year we saw in 2022
when the Canadians were all of a sudden
the largest single jurisdiction in euro,
sterling and dollar benchmark issuance
was down to deposit concerns, but they
slowed down when they realised the
outflows weren’t there. The main reason
why TD is much more active than the
other Canadians is that they are grow-
ing more on the lending side, and not
as active on the deposit side as names
like RBC and Scotia, so it’s more of an
issuer-specific story than something
with read-across for others.
Day, The CBR: Another dramatic
change we’ve had — as alluded to
by Olaf — has been the reopening
of the long end of the market, after
it was effectively closed for the sec-
ond half of last year. What are your
views on this development?
Stille, Nordea IM: Looking solely at
our covered bond positioning and ignor-
ing for now yield curve positioning, we
still have a strong preference for two
to three year maturities, just because
you have a better roll-down in terms
of spread versus swaps on the curve in
these tenors. But that doesn’t mean that
we like this part of the curve, and actu-
ally, we are underweighting this part of
the curve. In terms of pure yield expo-
sure, we have more further out along the
curve, even if the covered bond risk is
more in the short end of the curve.
Then for those regions that we par-
ticularly like in covered bonds, we also
buy the long end, because since we like
them, we want to have as much spread
risk as we can. So, for example, we didn’t
mind seeing the recent long dated Italian
covered bonds.
Mihailovic, APG: At the moment,
I find the long end pretty attractive.
There’s been quite a nice technical at the
long end this year. We’re spread inves-
tors, so we don’t need to go for duration,
but new issue premiums at the long end
were typically a bit higher. Even if we
don’t really have new issue premiums
anymore, I was able to get some nice
spreads there so I went for a lot of these
longer issues. I also had a lot of room
there, because I had been more posi-
tioned in the belly and the front end,
where we’d had a lot of supply last year.
So I was pretty open to this long dated
supply — and had actually been open to
it for some time. And now with the swap
spread curve having tightened a lot and
being less inverted, that helps as well.
I’m still more positioned in the belly,
because it takes quite a while to become
overweight one part of the curve, but
I have at least neutralised the long
end now, having previously been quite
underweight.
Donsimoni, Amundi: Being at the
long end amid the dynamic of tighten-
ing spreads will of course help you get
performance quicker than if you’re at the
short end. I checked back on some of the
recent issuance and the last short dated
issue I was involved in, the SocGen three
year, had tightened, but a bit less than
the recent 10 year issuance — such as
Crédit Agricole, Rabobank, Arkéa Home
Loans. Last year we were also more on
the short part of the curve or the belly
of the curve, but the market has moved
on, as issuers have listened to investors.
I think investors had been ready to take
long dated issuance into their portfolios
for some time, but it’s only more recently
that issuers have been ready to tap the
long end. So long duration has been
something of a win-win. And while we
have moved from the short end of the
curve to the long end, it’s just been two
Masa Mihailovic, APG:
‘There’s been quite
a nice technical at the long end
this year’
‘Long duration has
been something of a
win-win’

8. 8 The Covered Bond Report March 2024
IN ASSOCIATION WITH CRÉDIT AGRICOLE CIB
months of such activity, so our position
is still not that big.
Eichert, Crédit Agricole CIB: Indeed,
while investors are obviously a fairly
important part of the equation, issuers
are, too. And while many investors have
been happy to go into longer tenors, and
there is no longer any doubt that there
will be demand out to at least 12 years,
the limiting factor has been issuers not
wanting to pay what they have to for
extending out on the curve. With many
issuers expecting spreads to tighten
this year, they would probably rather
do something else now and maybe do a
longer dated deal later on if they need to
— which, as I suggested earlier, may well
not be the case.
Hoarau, Crédit Agricole CIB: We
have seen 10 and 12 years, but what
about 15 years? Is the market ready to
absorb that at the right spread? Or is it
still a bit too long?
Donsimoni, Amundi: Too long.
Twelve years would be my limit.
Stille, Nordea IM: We can certainly
buy 15 years, if the pick-up is high
enough. But the pick-up versus 10 years
that I have heard discussed is too small.
As a starting point, I would expect
to receive the same pick-up as on EU
bonds, for example, but that has not
been the case.
Mihailovic, APG: For 15 years, it
depends on the name, but I’m open to it
at the right level.
Day, The CBR: Amid the strong
opening to the year, we have seen
new issues being tightened as
much as 10bp-15bp during execu-
tion. What is your reaction to this?
Pimper, Commerzbank: The market
very quickly turned from a buyers’ to
a sellers’ market. Therefore, I have an
understanding for issuers and syndi-
cates that they still start IPTs at levels
that would have been demanded some
months before. It might take some
time before it really becomes clear that
demand is sustainably high. These days
we see more and more issuers lowering
their IPTs against their secondary curve.
So we are on the right path. And if even
more issuers can price their new issues
through their own curve, we will even
see secondary spreads tightening —
although actually they seem to be very
sticky.
Stille, Nordea IM: The degree of
tightening after initial guidance is
simply a reflection of risk sentiment.
Currently, this is very strong, so issuers
are able to tighten more. If we go back
to October, they could hardly tighten at
all, or maybe not even execute a deal. I
don’t think these moves are here to stay
— two months from now, it might not
be possible anymore. Meanwhile, it’s not
that big a deal for us — we know that
they will tighten more than six months
ago, so we just factor this in when decid-
ing whether or not we are going to buy.
Mihailovic, APG: I have my limits and
if the guidance tightens too much, I’m
out, and I’m quite open about that. I’m
not influenced by the size of books at all.
Sometimes it feels a little bit greedy, like
if pricing goes through secondaries, but
in that case, it’s simple, I’m just out.
Donsimoni, Amundi: Don’t take it
for granted that this will continue to be
accepted.
Hoarau, Crédit Agricole CIB: In
the most extreme cases, the joint
lead managers risk losing credibility:
it shows they don’t know where the
bonds belong. We want to play our
part in restoring more discipline to the
bookbuilding process, and you may
have seen that when we led the latest
Crédit Agricole Italia 12 year, we started
5bp tighter than what we had initially
been thinking, meaning that execution
was more orderly than on some earlier
trades. Clearly issuers are happy to take
the free option if investors don’t put any
limits on their orders, but this trend has
to stop somewhere.
Day, The CBR: Aareal and Deutsche
Pfandbriefbank (pbb) have already
come up in our discussions. How
have the investors been positioned
amid the price actions? Will there
be lasting impacts of the experi-
ence, such as greater differentia-
tion among German names?
Pimper, Commerzbank: From my
personal perspective as a domestic
buyer, Pfandbriefe with a spread of 70bp
and a tenor of three years are an oppor-
tunity. Pfandbriefe and covered bonds
as such are safe! The product has proved
its resilience several times during the
many crises of the last one-and-a-half
decades. It was always a source of fund-
ing for banks, even in very distressed
markets, and this was for a good reason.
It is supported by regulators, investors,
central banks and many others. Due
to its construction, based on a legal
framework, its dynamic cover pool, and
many other features that safeguard the
investor (i.e. liquidity reserves), I don’t
see any sign that a covered bond could
fail. Anyone who bears this in mind
without getting unnerved by headlines
Vincent Hoarau, Crédit Agricole
CIB: ‘We want to play our part in
restoring more discipline to the
bookbuilding process’
‘Sometimes
it feels a little bit
greedy’

9. March 2024 The Covered Bond Report 9
IN ASSOCIATION WITH CRÉDIT AGRICOLE CIB
on no new news would see spreads for
short term covered bonds beyond 70bp
as an opportunity.
Mihailovic, APG: We weren’t surprised
at what happened. We didn’t have any
exposure in those names. And gener-
ally we have been quite underweight
Germany.
We did discuss if it would make sense
to take the opportunity of these really
wide levels. However, covereds are part
of our larger credit mandate, and there
were also opportunities in seniors, and
in the end, we didn’t go for it, there were
other fish to fry.
Donsimoni, Amundi: We didn’t step
in. We have limits on adding exposure
for issuers where the share of com-
mercial real estate in their cover pool is
above certain thresholds, meaning that
we exclude some German issuers, just to
be very safe. But we have participated in
names like Commerzbank where we are
sure that the bank’s situation is OK.
Taillepied, Amundi: I have actually
been surprised that the differences
between banks, based on their funda-
mentals, are not more greatly reflected
in their access to funding. There is a
very big difference between a name like
Commerzbank and a name like pbb, but
look at what the latter has been able to
achieve: pbb has since last summer suc-
cessfully issued €2.7bn of covered bonds,
it took more than €2bn of retail deposits
in 2023 and added another €0.3bn in
January and February.
Eichert, Crédit Agricole CIB: With
pbb similarly upbeat about the outlook
for 2024 as Aareal, the situation has
calmed down for now. Pbb’s AT1 almost
doubled in price on the day of the re-
sults, from a cash price of around 20 into
the high 30s. On the covered side the
move was less pronounced, of course.
Still, we had three year pbb at mid-swaps
plus 85bp-90bp, and now we’re back
below 70bp.
Nonetheless, the episode showed
how meaningful spread differentiation
has become even in a market such as
the German one. A couple of years ago,
everything in the German market was
within a 4bp-5bp range — who you were
or what you did made zero difference to
where you traded. Now, you even have a
differentiation between Aareal and pbb,
because Aareal is effectively the stronger
institution from a business model
standpoint, and there’s a good 15bp
differential between the two names. I
can’t remember a time when we’ve had
greater differentiation on the issuer side,
unless you are talking about really dis-
tressed issuers in southern Europe a few
years back. In a way, it’s the healthiest
the market’s been in terms of investors
preferring some names over others and
actually getting paid for the credit work
they put in.
Pimper, Commerzbank: Isn’t it beau-
tiful that risk is priced more adequately
these days? Previously, there was no
differentiation in spreads in certain ju-
risdictions; today, the market is pricing
risk much more precisely by demanding
higher spreads for riskier assets (CRE),
lower OC or weaker jurisdictions. The
composition of a cover pool does matter.
But not just since the headlines around
pbb emerged — since always. In times
of high yields, work from home, and
internet shopping, some commercial
real estate is riskier than a granular retail
mortgage cover pool. This should not
come as a surprise to any investor. But
as long as the risk is adequately priced,
there is no reason not to buy covered
bonds with such exposure.
Stille, Nordea IM: We have been
buying quite a lot of those names over
the last weeks — actually at levels much
wider than those Florian mentioned. We
bought quite a bit at around swaps plus
100bp as some forced sellers exited large
positions.
There are, of course, some risks in-
volved and there could be some volatil-
ity going forward, but while I agree that
Commerzbank — and also Deutsche
Bank — don’t have much of this CRE
exposure and looks good, quite a few
German names just below Aareal and
pbb also have significant exposure but
are still trading very tight. At least when
we buy Aareal or pbb, we are getting
some compensation for the CRE risk, so
I’d rather buy those two and avoid this
mid-segment that has CRE exposure
but has not repriced, and then maybe
some Commerzbank without the CRE
exposure.
Also, Aareal and pbb trade very ex-
pensive in the repo market, 150bp below
ESTR, which means we have close to
300bp in repo carry if we repo them out
— that’s just too attractive to not buy.
In fact, if you run a fund that is funding
its positions and you get 300bp in repo
carry on double-A rated paper, I think
you get fired if you don’t buy it.
Day, The CBR: What might the
longer term fallout be? Could the
Germans lose more or all of their
spread advantage?
Pimper, Commerzbank: The loss of
the spread advantage of German Pfand-
briefe is a result of the disproportionate
supply that could not be absorbed by the
domestic market alone. Several German
issuers brought between seven and nine
Stéphane Taillepied, Amundi:
‘I have actually been surprised that
the differences between banks are
not more greatly reflected’
‘We exclude some
German issuers, just
to be very safe’

10. 10 The Covered Bond Report March 2024
IN ASSOCIATION WITH CRÉDIT AGRICOLE CIB
benchmarks to the market since the
beginning of 2023, while in the years
before four benchmark issues would
have been a lot. This is why German
Pfandbriefe lost some ground against
countries with a higher scarcity factor.
The same is true for French covered
bonds, by the way. French banks were
also issuing pretty heavily since the
beginning of last year.
Eichert, Crédit Agricole CIB: There
are two factors I would mention. First
of all, I don’t think you’ll have inves-
tors completely disregard such differ-
ences any longer. And you no longer
have the ECB disregarding it on behalf
of everyone else, squeezing everything
together. So can we see further recov-
ery from these levels? Absolutely. But I
don’t think everyone will be within 5bp,
because that was a result of QE, which is
no longer with us.
More broadly, the German space had
already been somewhat weakened prior
to Aareal and ppb hitting the headlines.
There has been less and less buying by
domestic investors, meaning German
issuers have been in greater need of
international investors to fill up their
order books. So not only has the ECB
distortion been priced out; the domestic
bias among German investors has, too,
to an extent. This has led, as I mentioned
earlier, to some of the smaller, less
well known Germans pricing at levels
wider than some of the Portuguese, for
example. It’s not that they’re bad issuers;
they’re just not so well known and can’t
rely on the domestic bid as much as they
used to. And ever fewer people follow
the mantra that a Pfandbrief is a Pfand-
brief and they all trade tight because it’s
never defaulted in more than 250 years.
So rather than trade at levels inside
everyone else because it’s a Pfandbrief,
they are viewed in a broader context in
competition with French, Dutch and
Nordic names.
Had one of the Germans moved
all the way towards resolution, things
could have turned out really ugly for the
overall market. You would have had a
big stain on the Pfandbrief space, with
even the stronger issuers not necessarily
exposed to CRE ending up trading at
French levels, and a shift in the ranking
of jurisdictions, with the Germans no
longer being the top dog. But for now,
we’ve dodged that bullet.
Day, The CBR: Green and social is-
suance has been relatively promi-
nent in covered bond issuance so
far this year. Last year such supply
was perhaps lower than hoped, al-
though did provide some highlights
in less buoyant market conditions.
Are you particularly keen to get
involved in ESG issuance, to the
extent that your order sizes are
bigger and/or you might accept a
tighter spread?
Stille, Nordea IM: We usually focus
on these — not only green issues, but la-
belled bonds in general — because they
typically behave better in the secondary
market, they tend to be better placed,
and so on, so there is less risk of spread
widening than for non-labelled bonds.
We are meanwhile developing a
sustainability model for covered bonds,
where we will look at features of cover
pools such as the energy efficiency of
the collateral, and start to score and
rank them. Some of our clients are
very focused on this and we will tilt the
respective investments into the cover
pools that are viewed as the most sus-
tainable. But that’s more for clients who
are specifically asking about this; for our
overall funds, it’s the better performance
that is more relevant.
Pimper, Commerzbank: A clear yes
from my side. When it comes to climate
change, banks have a mission, from my
perspective. They are the ones allocating
capital from savers and investors to the
real economy. They have the power to
incentivise investments that make our
planet more sustainable. We are also
gaining more and more knowledge that
sustainable investments are less risky. So
why not reflect this risk advantage in the
pricing of sustainable assets?
Mihailovic, APG: In general, we like
green and other labelled bonds. How-
ever, a green bond may not necessarily
constitute an SDI for us — we have our
own department that figures out how
important the impact is. Meanwhile, our
clients have their own preferences, so it
can come down to the specific SDGs in
question.
But while these aspects are impor-
tant, they are not more important than
the spread. The spread is still most im-
portant for us, so we wouldn’t really give
up any basis points for a label. Some-
times having a label has helped with
better liquidity lately, so we do take that
into account. At the long end, before
there wasn’t such a great technical, hav-
ing a bond be green just added a little bit
of a bonus. And if there’s so much supply
and we have to be a bit more selective,
if it’s green or labelled, it’s a bonus that
helps us decide. But, again, I wouldn’t
say we ever give up any spread for it.
Donsimoni, Amundi: I agree with
Masa and I don’t believe an issuer should
issue tighter because a green bond is
green. Performance is the main focus,
ahead of whether a bond is green or not.
It’s the same as how we invest in credit
in general and we will consider green
bonds melded with classical bonds. We
are, of course, involved in green, social
and sustainable bonds, and it’s a plus,
but if the pricing is not fair, then we
won’t invest just because of the label.
Olaf Pimper, Commerzbank:
‘Why not reflect
this risk advantage in the pricing of
sustainable assets’

11. March 2024 The Covered Bond Report 11
IN ASSOCIATION WITH CRÉDIT AGRICOLE CIB
Hoarau, Crédit Agricole CIB:
Indeed, just because a bond is green,
the risk profile doesn’t change, and
in that respect, academically there is
no reason why it should trade tighter.
Nevertheless, we all know we can’t fight
technicals, and technicals are quite
strong when it comes to green bonds.
Take secondary market performance,
as Henrik mentioned: a trader will be
much more reluctant to short a green
bond than a conventional bond, so by
definition, everything being equal, a
green bond is likely to perform better
than a conventional bond. Sometimes
we see distortions in the secondary
market, with one bond trading tighter
than another, and it’s nothing to do
with one having an on-the-run coupon
and the other being off-the-run; it’s just
that one is green, the other is conven-
tional. This can be more pronounced
in the unsecured market, particularly
at the long end, but is also evident in
covered bonds.
In the primary market, it’s a question
of demand. Demand for green is greater
than for conventional bonds, and when
demand is greater, and you have more
granularity, there is by definition greater
traction, stronger price tension, which
certainly offers issuers more flexibility to
look at a tighter price. I fully understand
if investors ask why it should price
tighter, but at the end of the day, it’s
because of the intensity of demand and
lack of resistance in the order book that
we may see for a green bond versus a
conventional bond. In short: the imbal-
ance in the demand-supply dynamic in
ESG-labelled products is still too severe.
So, like it or not, when you put every-
thing together, you have a positive bias
towards an ESG-labelled transaction
versus a conventional one. Masa calls it a
bonus — I like to call it vitamin D.
Donsimoni, Amundi: I agree, but it’s
getting more and more melded with
the conventional market today. At the
beginning, there was a big greenium,
but it’s less the case as of today. We have
actually seen some clients stepping out
of pure green bonds to come back on
classical bonds. It seems ICMA and all
the investors have pushed to say that
there is no reason to have a greenium.
Day, The CBR: Will it make a dif-
ference whether an issuer is in line
with the EU Green Bond (EuGB)
Standard and Taxonomy, or is
only in line with the Green Bond
Principles?
Eichert, Crédit Agricole CIB: Even
market leaders like KfW have said that
it could be better to have size and sup-
ply at the levels being achieved under
the GBP than to push for EuGB compli-
ance and end up issuing one bond per
year. At the moment, there are effec-
tively no banks able to issue covered
bonds fully aligned with the standard.
So is it a deal-breaker for investors? No.
It’s a bonus if you are in line, or if you
will be at some point. But if you limit
yourself to only buying EuGB issuance,
then you will basically be restricting
yourself to buying very few bonds, and
then the impact you have as an investor
is very limited. At the end of the day,
or at least in the coming years, I think
they’ll coexist. n
Credit: Sporti/Wikimedia Commons
‘You have a positive
bias towards an ESG-
labelled transaction’

12. Crédit
Agricole
Corporate
and
Investment
Bank
is
authorised
by
the
Autorité
de
Contrôle
Prudentiel
et
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Résolution
(ACPR)
and
supervised
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the
European
Central
Bank
(ECB),
the
ACPR
and
the
Autorité
des
Marchés
Financiers
(AMF)
in
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and
subject
to
limited
regulation
by
the
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Conduct
Authority
and
the
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Regulation
Authority.
Details
about
the
extent
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our
regulation
by
the
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and
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Corporate
and
Investment
Bank
London
branch
on
request.
Crédit
Agricole
Corporate
and
Investment
Bank
is
incorporated
in
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with
limited
liability
and
registered
in
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&
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Registered
number:
FC008194.
Branch
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BR
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Registered
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2DA.
www.ca-cib.com
building
success
together
NOVO BANCO, S.A.
Joint Bookrunner
EUR500,000,000
3.250% Inaugural Covered Bond
Due 2027
FEBRUARY
2024
NOVO BANCO, S.A. NORDEAMORTGAGE
BANKPLC
Joint Bookrunner
EUR750,000,000
3mE+20bps Covered Bond
Due 2027
EUR1,000,000,000
3.000% Covered Bond
Due 2031
JANUARY
2024
BANCO SANTANDER TOTTA,
S.A.
Joint Bookrunner
EUR1,000,000,000
3.250% Covered Bond
Due 2031
FEBRUARY
2024
LA BANQUE POSTALE HOME
LOAN SFH
Joint Bookrunner &
ESG Structuring Advisor
EUR750,000,000
3.125% Covered Bond
Due 2034
JANUARY
2024
CRÉDITAGRICOLEHOME
LOANSFH
Global Coordinator &
Joint Bookrunner
EUR1,250,000,000
2.750% Covered Bond
Due 2028
EUR1,250,000,000
2.875% Covered Bond
Due 2034
JANUARY
2024
CAISSEFRANCAISEDE
FINANCEMENTLOCAL(CAFFIL)
Joint Bookrunner
EUR1,000,000,000
3.125% Covered Bond
Due 2033
JANUARY
2024
CAISSEDEREFINANCEMENT
DEL’HABITAT
Joint Bookrunner
EUR1,250,000,000
2.750% Covered Bond
Due 2029
EUR750,000,000
3.000% Covered Bond
Due 2034
JANUARY
2024
MEDIOBANCA S.P.A
Joint Bookrunner
EUR750,000,000
3.250% Covered Bond
Due 2028
JANUARY
2024
COMMERZBANKAG
Joint Bookrunner
EUR1,000,000,000
2.750% Covered Bond
Due 2027
EUR1,000,000,000
2.750% Covered Bond
Due 2031
JANUARY
2024