Covered Bonds

The European Banking Authority has published guidance on environmental, social and governance risk that illustrates an overriding need for transparency. It comes as Jyske Realkredit becomes the first bank to disclose information on its green mortgages under the European Covered Bond Council’s newly set up Energy-Efficient Mortgage Label initiative.

Austria’s Oberbank issued its first green covered bond on Thursday under its newly established green framework. Consistent with recent deals, the transaction was priced 2bp inside the initial spread with a 2bp new issue concession as investors showed once again that they are sensitive to price.

The blockchain firsts in capital markets are coming quickly. DZ Bank is marketing a corporate Schuldschein that will run back office functions on a blockchain for the entire duration of the trade — the first time this has been done — while Société Générale’s subsidiary Forge is working on various permutations of trades to be issued using this form of distributed ledger technology. While blockchain tech is still in its infancy, it is set to disrupt capital markets, creating winners and losers.

Ahead of what is expected to be a long, dry summer in the primary covered bond market, Korean Housing Finance Corporation (KHFC) and Caffil were out on Wednesday with €1bn new issues.

Since Friday last week the European Central Bank has stepped up asset purchases under its Pandemic Emergency Purchase Programme, giving secondary markets in rates products renewed vigour, said traders on Tuesday.

There was a clear shift in pricing dynamics last week with larger movements from initial price thoughts, across all sectors but particularly in the markets that carry higher inherent risk. At the same time though, real estate companies drove up the average concession paid in the corporate sector, but that measure fell in the rest of the primary market.

A tightening in spreads on senior unsecured bank bonds and wider covered bond spreads has made the latter an even less attractive funding market for issuers which, added to a plethora of additional factors, means that market could be facing its lowest year for issuance in 20.

Senior and covered bond plans were flowing into the deal pipeline on Monday, with issuers keen to buck the softer tone and print before the start of the summer break.

Market participants think spreads on HSBC’s French covered bonds will "meet in the middle" with those of the lower rated My Money Bank, as the former gets ready to sell its operations to the latter.

The sterling covered bond market exploded into life this week as three transactions worth more than £3bn priced in three days, increasing this year’s issuance by 150%, and boosting hopes that more deals will follow.

Tuesday's 10 year benchmark new issue from the EU may have widened in the secondary market on Wednesday and Thursday but with the ECB able to buy the deal from Friday onwards, spreads look well supported, said traders on Thursday.

Korean Housing Finance Corporation mandated leads for a euro covered bond on Thursday, to be issued under its social framework. At the same time, after this week’s trio of sterling covered bonds bankers believe there is scope for further Sonia-linked supply.