Covered Bonds

The final text of the European Commission’s draft Taxonomy of Sustainable Economic Activities has been described as a positive compromise. But one funding official has described it as untenable and unable to promote green covered bond issuance.

Julius Baer ventured into the Swiss franc market this week to sell its debut operating company bond, raising Sfr260m ($276.9m) in an investor diversification exercise. It was joined by Pfandbriefzentrale, which saw demand skewed to the long and short ends of its latest multi-tranche covered bond offering.

The European Union’s final draft Taxonomy of Sustainable Economic Activities came in for heavy criticism from a European bank's head of funding on Thursday, who said that the compromise wording would torpedo the market for green covered bonds.

The Covid pandemic has delayed a lot of progress in the capital markets, but bankers say the industry is still on track to meet Libor transition deadlines. Investors have consented to the Bank of Nova Scotia transitioning the basis of its sterling covered bond from Libor to Sonia, while Westpac is seeking consent.

Axa Home Loan SFH issued the only covered bond of the week on Wednesday, when it surfaced with a €250m tap of an old 15 year deal. The transaction underscores the impression that a flood of retained issuance used for central bank funding is negative for distributed supply. Yet, there is still hope that the situation will improve in the second half of the year.

A transition of the Spanish covered bond regime should be done in one fell swoop akin to a "big bang", argued delegates at GlobalCapital's virtual covered bond roadshow on Tuesday.

Tagging assets to liabilities is a critical exercise for covered bond issuers, particularly when it comes to their ESG paper. Start-up mortgage lender Perenna is working with Tao Solutions to create a verifiable audit trail with technology that automatically matches green covered bonds to the appropriate mortgage loans.

Europe's high grade corporate bond investors are becoming more sensitive to price, as inflation and European lockdown worries rattle nerves. Orderbooks have fallen away during the pricing process, making it more difficult for issuers to tighten far from initial price thoughts.

Banks with funding ambitions could be more tempted to consider covered bond issuance following a recent increase in execution risk for senior unsecured deal, bankers told GlobalCapital on Tuesday.

Bank Julius Baer, the operating company arm of the private Swiss bank, has mandated for its inaugural bond, marking the first time this name has issued at an opco level. At the same time, Pfandbriefzentrale raised Sfr926m ($990.6m) with a new three part covered bond.

In a move that is expected to bolster the market for green covered bonds, the final text of the European Commission’s draft Taxonomy of Sustainable Economic Activities has been revised to accommodate current best practice and include buildings that rank nationally within the top 15% most energy-efficient.

A leaked letter from the European Parliament, seen by GlobalCapital, shows the Parliament has joined in the debate about the Sustainable Finance Disclosure Regulation, which has been watered down to make life easier for institutional investors. The Parliament is calling for the rules to be strengthened, to help savers know which investments are green and ensure compliance does not become just a “tick box exercise”.