Covered Bonds

With industry veterans saying that low ratings should be no obstacle to covered bond status and the rating agencies holding out the promise of piercing the sovereign ceiling, Turkish issuers were last Friday being bullish about their chances at the 11th Central European Covered Bond Conference, organised by the Banks Association of Turkey and the Association of German Pfandbrief Banks in Istanbul.

The maturity of IM Cédulas XII has been fixed at two years and Barclays Capital, Commerzbank, LBBW and Natixis are expected to launch the deal in the coming days. Other issuers, however, are said to be holding off from confirming mandates given the redoubling of risk aversion in the market.

“Between two evils, I always pick the one I never tried before.” Mae West’s quote was invoked by Fritz Engelhard, director of European fixed income strategy at Barclays Capital, at the 11th Central European Covered Bond Conference in Istanbul yesterday (Thursday) to highlight the dilemma some issuers felt they were confronted by when choosing between structured and legislative covered bonds.

Market participants were this (Friday) morning asking how long the covered bond primary market could withstand the stream of bad news from financial institutions that has put the frights on investors in other sectors and pushed credit spreads wider.

Delegates at the 11th Central European Covered Bond Conference, organised by the Banks Association of Turkey and the Association of German Pfandbrief Banks in Istanbul, yesterday (Thursday) debated the true cost of public supervision of covered bond issuance and, crucially, where deals from emerging markets should trade versus government bonds.

DnB Nor’s Eu1.5bn three year covered bond proved a hit with investors yesterday (Wednesday), attracting Eu3.8bn of orders in three hours, enabling the leads to tighten pricing from the 3bp area guidance to 2bp over mid-swaps.

Compagnie de Financement Foncier priced its Eu1bn seven year obligations foncières issue in the middle of mid-swaps plus 3bp guidance this (Thursday) morning, in the face of the weaker tone this week and also the number of deals it has issued since September.

Eurohypo will next week launch its first jumbo since this summer’s turmoil erupted and the first benchmark mortgage Pfandbrief since then. The deal will show, after WestLB’s transaction this week, that German issuers are once more finding the market attractive.

HM Treasury is delaying the implementation of the new UK covered bond regime until March 6, 2008, following objections to its earlier proposals for the Recognised Covered Bond regime.

Washington Mutual spreads ballooned again this (Thursday) morning on the back of a 17.3% fall in its share price yesterday (Wednesday), as concerns about its financial performance and the impact of the New York attorney general’s investigation into mortgage appraisals grew.