Covered Bonds

Banks shouldn’t let conceptual considerations stand in the way of them issuing sustainability-linked bonds.

European banks face tough conceptual and regulatory barriers as they enter the market for sustainability-linked debt. But DCM bankers hope that they can find a simpler solution for issuers by focusing on covered bonds, write Tyler Davies and Bill Thornhill.

The European Central Bank's covered bond purchases remained weak in March and, with issuance expected to stay anaemic for the foreseeable future, it will struggle to prevent its portfolio from shrinking. While this is positive for spreads, returns this year have been abysmal and, in the absence of supply, investors are being squeezed out.

Citi has filled the covered bond and SSA research analyst spot that was vacated by Michael Spies when he moved to DCM. Meanwhile, Commerzbank has lost a research analyst.

Canada’s Office of the Superintendent of Financial Institutions has removed the temporary increase of the covered bond issuance limit mirroring the Bank of Canada’s earlier decision to remove covered bonds as an eligible asset for repo funding.

Compagnie de Financement Foncier took advantage of Tuesday’s strong market conditions to issue its first covered bond of 2021, and the fifth from Groupe BPCE. The €1.5bn eight year negative yielding transaction, which was larger than expected, partially refinances a series of CFF’s redemptions coming up in the next two months.

Loans still under moratoria may be at a particularly high risk of impairment, according to fresh data from the European Banking Authority this week. The figures also revealed signs of a more general deterioration in asset quality within the EU.

A study of 657,000 UK mortgages undertaken by Nationwide Building Society over the past year suggests that the greener building a mortgage is secured on, the lower the risk of default. Moreover, this relationship is not affected by a borrower’s wealth, the location, or the type of property.

Deliveroo and its shareholders raised £1.5bn this week. The IPO was a dog, priced at the bottom of its range and falling 20% on its debut. But it’s hard to feel sympathy for the investors.

Sales of ESG-labelled debt have skyrocketed in the FIG market over the first quarter of 2021, with issuers already halfway through last year’s total volumes. Deal arrangers are confident that supply will be able to keep pace, as banks find room to expand into a burgeoning social bond market, write Tyler Davies and Bill Thornhill.

Banks that avoid holding a record of a building’s Energy Performance Certificate in some countries are more likely to meet the standard needed to meet the European Commission’s final draft Taxonomy for Sustainable Activities, delegates at the IMN’s virtual covered bond conference heard on Tuesday.

Fédération des caisses Desjardins du Québec (CCDJ) issued a rare and well subscribed five year euro covered bond on Tuesday, which was priced inside fair value. The outcome was similar to a recent deal from National Bank of Canada, but is not expected to boost supply prospects.