Covered Bonds

A proposed French law may incentivise owners to take out loans that improve the energy efficiency of their homes, which could boost green mortgage production and green covered bond issuance.

Aija Zitcere, director in the financial markets policy department of the Latvian Finance Ministry and her colleague, Imants Tiesnieks, a senior expert in the same department, discuss the main features of Latvia’s covered bond law, which was approved by its Parliament on Wednesday.

Westpac New Zealand attracted a high quality order book for a covered bond issue on Wednesday but it was slow to build and thinly subscribed, leading some to conclude that the market lacked confidence.

Hedge funds have taken a lot of heat for their role in inflating order books and flexing spreads, only to flip out and take profits at the first opportunity. But despite the awkward and at times antagonistic presence of such funds, issuers are coming to learn that they are probably better off having them in the order book than not.

Investors in Europe's high grade corporate bond market became increasingly selective last week. Average new issue premium shot up to almost 11bp from minus 2bp the week before. The move gave some insight as to which sectors of the economy investors see the pandemic recovery taking place in.

BPCE re-established confidence in the primary covered bond market with a successful €1.5bn nine year green transaction on Tuesday, opening the way for other issuers planning deals.

There was strong buying interest in recent long dated bonds from the EU on Monday, said traders, as well as those of semi-core European sovereigns. That is expected to continue this week as hedge funds circle the EU's most recent bond.

A draft amendment to the Hungarian covered bond regime, that brings it into line with the European Union's Covered Bond Directive, is likely to be a positive for the product's credit and should improve prospects for issuance in euros.

Inflation fears are biting European markets just as investors seem to be losing confidence in the ECB's support of the market. The first bow waves of a European taper tantrum rocked rates this week as primary markets did their best to plough on. The European Union braved the volatility to land a colossal deal, while two covered bond issuers fared worse. Lewis McLellan and Bill Thornhill report.

Covered bonds issued this week by United Overseas Bank and Raiffeisen-Landesbank Steiermark showed that, for the first time this year, sentiment has turned bearish and suggested that more careful consideration of pricing, timing and maturity is now required.

Oversea-Chinese Banking Corporation is seeking investors' consent on Thursday to convert a sterling covered bond from referencing Libor to Sonia amid what Fitch described as an improved outlook for Asian covered bond issuance. Covered bond bankers agreed with the sentiment but noted issuers were hesitant and clearing levels have shifted wider after this week’s supply.

Spreads in the European sovereign, supranational, agency sector moved wider on Wednesday in the wake of the European Union’s deal with the Street accounting for most of the flows.But with Bund yields expected to stabilise soon spreads should consolidate, believed several traders.