Covered Bonds

The depth of demand for financial institutional funding in the domestic Scandinavian currency markets was illustrated this week with a series of covered bonds and subordinated new issues.

Nykredit Realkredit is expected to open order books for two Swedish krona covered bonds on Thursday with a combined value of about €2bn, including one secured on green mortgages.

The Association of German Pfandbrief Banks has developed a contract to ensure Pfandbrief investors’ priority claims on UK-based cover pool assets after Brexit.

The size of a covered bond liquidity buffer that protects investors against the risk of payment disruption should be an important risk consideration, but there is no incentive to play safe as regulatory and central bank treatment of the asset class play more pivotal roles in valuations.

Nationwide Building Society has become the first borrower to issue a 10 year deal linked to the Bank of England’s Sonia index. The covered bond, which was issued on Tuesday with a highly oversubscribed order book, provided Nationwide with its cheapest ever funding and will be closely watched by other issuers looking to make similar deals.

Covered bonds spreads make "no sense" against other asset classes, according to market participants, but issuers can still expect to price bonds inside fair value and be confident their deals will perform thanks to the impact of European Central Bank purchases and negative net supply.

The Austrian covered bond issuer Bawag has bought Depfa Bank from the German wind-down agency, FMS Wertmanagement.

Feeble bank lending figures suggest that some European banks will not be able to tap the ECB's Targeted Longer-Term Refinancing Operations (TLTRO) at the cheapest rate on offer. For those institutions, covered bond funding will become a compelling alternative.

The covered bond market is historically cheap relative to senior unsecured paper, but real money buyers have been unimpressed as other valuation comparisons have proved more important.

Canada’s Equitable Bank has registered its covered bond programme this week. It expects to issue its first transaction in euros at the short end of the curve in the second quarter.

Achmea has become the latest Dutch bank to transition to a soft bullet maturity. This will have a material impact on central bank treatment and funding, but opportunities to extract value in the secondary market will be a challenge.

The European Covered Bond Council is to launch its energy-efficient mortgage label on Friday with a virtual event. The label will act as a “lighthouse” for all stakeholders, marking a clear way towards a green housing renovation revolution, the ECBC’s Luca Bertalot told GlobalCapital on Tuesday.