Covered Bonds

Moody’s has upgraded the mortgage Pfandbriefe of Eurohypo from Aa1 to Aaa, offering some rare good news in this week’s turbulent market. The move was widely anticipated since the rating review was initiated in May, coming with changes to the rating agency’s methodology and an upgrade to the issuer to A1.

The decision by the European Covered Bond Council yesterday (Wednesday) to follow the advice of the Eight-to-Eight committee and suspend market-making until at least Monday is set to add further weight to calls for changes to the current system. Patrick Amat, chairman of the ECBC, said that the problems caused by inter-dealer market-making commitments were the reason for the suspension.

SEB AB is looking beyond the turmoil in the market today as it lays the foundations for a long term presence in the euro market on its roadshow. Anders Kvist, head of group treasury at SEB, said that the Swedish issuer expects to issue one to two euro benchmarks a year and build a full curve.

The wisdom of AIB Mortgage Bank’s decision to try to issue a three year covered bond via Barclays Capital, BNP Paribas and Deutsche Bank this week was being questioned today after the bank’s decision to pull its issue yesterday (Tuesday). While market participants understood the decision to suspend its issue in light of the deterioration in market conditions, they asked why AIB tried to come to such an oversupplied and fragile market with a deal that has now only further undermined sentiment.

The European Covered Bond Council’s Eight-to-Eight committee is understood to be considering suspending market-making in light of the surge in volatility in the financial markets. Bankers described the market this morning as “absolute carnage”, saying that conditions were worse than at any time in August or September.

The Banque Populaire group has just finished the roadshow for its first covered bond, but Alain David, CFO of the group in Paris, told The Cover today (Tuesday) that the issuer is in no hurry to come to market, particularly given the sharp deterioration in sentiment this week. He also denied that the group’s issuance, outside the obligation foncières framework, was a structured covered bond.

AIB Mortgage Bank has taken the unprecedented step of postponing its planned three year covered bond more than a day after opening books for the issue, citing the “extreme volatility in the credit markets”. The decision threatens to further damage sentiment in the covered bond market, which one syndicate manager described as “poisoned”.

Bayerische Hypo- und Vereinsbank could breathe a sigh of relief today (Tuesday), pricing its Eu1bn five year mortgage Pfandbrief in the middle of 3bp over mid-swaps guidance just before the primary market appeared to close for new issuance.

HVB was said to be weathering the storm in the covered bond market reasonably well today (Monday), having built a book of Eu1.5bn for a deal limited at that size at guidance of 3bp over mid-swaps. Investors put its success down to German issuers’ domestic support.