Covered Bonds
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Click through to browse the latest annual Covered Bond supplement from EuroWeek and The Cover. -
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Moody’s Investor Services has downgraded Washington Mutual’s covered bonds from Aaa to Aa1. With concerns over the US housing market hardening, Fitch and Standard & Poor’s (S&P) have cut the rating of the bank itself and its ratings remain on their watch lists with negative implications.
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Having on the issuer front made the transition from the European time-zone to the American time-zone in the past two years, covered bonds had looked set to enter the Asian time-zone by the time this special report was published.
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Volatility can produce both investor conservatism and opportunities for new, sometimes brave, issuers. The contrasting fortunes of Norway’s banks’ debut covered bond issues before and after the crisis have shown the importance of timing. Japan and Italy, meanwhile, appear to have time on their side.
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When The Cover looked at analysts’ forecasts for covered bond supply in 2008, the new entrant with the potential for the most supply was Italy, with one bank even expecting it to be the fifth biggest jurisdiction this year.
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The strength of an issuer’s domestic investor base has emerged as a key determinant of covered bond spreads since the crisis began last summer. Those that benefit have been able to relax, while those reliant on foreign investors have redoubled their efforts to penetrate new pockets of money.
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Emerging markets are targeting covered bonds as both a new funding tool and an important stepping stone towards international recognition. They aim to take advantage of the asset’s safe nature and its strong brand name to unlock new types of investors while encouraging existing emerging market investors to adopt a new type of investment. Robert Campbell reports.
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Whether the result of quality, quantity or simply a loyal investor base, the Pfandbrief has emerged from the crisis as the most reliable covered bond. Plans to loosen mortgage and public sector Pfandbrief standards have therefore been dropped. But the first amendment to the Pfandbrief Act could create a new asset class: airplane Pfandbrief.
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The spread between obligations foncières and other French covered bonds has underlined the power of legislation, and the UK hopes its own new framework will pay off. But recent developments suggest a more complicated picture. The Canadian regulator, for one, has yet to be won over, and structured issuance in Germany has finally emerged.
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Covered bonds have been a crucial funding source for Spanish banks in recent years. But following a surge in supply in late 2007, the cupboard of Spanish cédulas has been bare. Oversupply has often been the product’s problem, but Spain had made big efforts to moderate this and with updates to the domestic covered bond framework Spanish issuers were on track to improve their profile. In difficult market conditions, will this be enough to bring issuers back to market?
