Refinancing
The Pfandbrief markets were once again dominated by the ECB’s Covered Bond Purchase Programme (CBPP3) in 2017. Markets were additionally influenced by political developments in Europe, especially elections in Germany, France and the Netherlands. Despite this difficult environment we found ample windows of opportunity to place new issues, which we used to refinance our activities at attractive conditions.
We floated our first benchmark issue of the year under review in May with a € 500 million Mortgage Pfandbrief that had a term of ten years and carried a coupon of 0.625 percent. The issue was priced at 12 basis points below the mid-swap rate. Thirty-four orders were received from investors in nine countries with Germany accounting for 83.5 percent of the volume sold followed by countries in Asia and the Middle-East. Excellent market conditions allowed the Bank to tap the issue by an additional € 250 million in October. The success is reflected by the price, which was set at 17 basis points below the mid-swap rate.
We successfully issued another Mortgage Pfandbrief in benchmark format in August, which is actually the classical summer vacation month in the capital market. Demand in the market was so great that we issued a volume of € 750 million. The Mortgage Pfandbrief had a term of nine years and two months and again carried a coupon of 0.625 percent. Market interest was reflected by the 64 orders received form ten countries, with Germany once again with the lion’s share of orders. The issue was placed at a price of 13 basis points below the mid-swap rate.
The share of foreign currency denominated issues declined in the year under review by a total of 13 percent as the attractiveness of refinancing in US dollars and pound sterling declined substantially in comparison to euro-denominated issues.
The Swiss franc was the primary currency for our foreign currency denominated issues as we placed a total volume of CHF 810 million. In January we issued a two-year Mortgage Pfandbrief with a volume of over CHF 250 million. We followed up this issue with an additional two-year Mortgage Pfandbrief that had a volume of CHF 250 million. Due to strong demand seen for this issue we tapped it for an additional CHF 50 million one day after the issue.
We successfully placed a seven-year unsecured Swiss franc denominated bond in September. The bond had a volume of CHF 160 million.
In October we entered new territory when we issued a 15-year Mortgage Pfandbrief in benchmark format with a volume of CHF 100 million. The issue was priced at 8 basis points below the Swiss franc mid-swap rate. The issue caused a commotion in the Pfandbrief markets as this marked the first time ever that a foreign issuer of covered bonds achieved a higher interest rate discount compared to the domestic Swiss Pfandbrief curve.
Only one large-volume bond matured during the previous business year: a Public Pfandbrief with a volume of € 0.5 billion matured in September.
The total volume of issues placed in the capital markets in 2017 amounted to € 5.6 billion, of which Mortgage Pfandbriefe accounted for € 4.2 billion in covered refinancing, while unsecured refinancing amounted to € 1.4 billion. During the period under review we once again did not issue any Public Pfandbriefe due to the direction of MünchenerHyp’s business strategy.