Covered Bonds

Expected euro denominated covered bond supply from the Nordic region looks promising with Norway likely to prove a particularly bright spot. However, more cost-effective domestic funding in the Swedish market is expected to depress euro volumes there.

Germany will remain one of biggest covered bond issuance regions, accounting for up to a fifth of European supply next year. The residential real estate market and economy are expected to remain resilient and, along with robust investor protection built into Pfandbriefe, the market is well buttressed — even when it comes to riskier commercial real estate exposures.

Singapore could prove to be a rich seam of covered bond issuance next year, with bankers suggesting analysts’ expectations are far too pessimistic. Conversely, Australian issuance may prove to be disappointing. Meanwhile, potential new legal developments in Japan and Malaysia will provide a key focus of attention.

Covered bond supply from the Netherlands is expected to lead the Benelux region next year, where a total combined issuance of €9bn is due to surfac,e based on the average of six forecasts.

Covered bond issuance from France is likely to be the highest from any country next year, reflecting the sheer size of the market, high redemptions and banks' propensity to use covered bonds for market funding rather than for repo funding at the central bank.

Investor demand for higher yielding covered bonds from Central and Eastern Europe will likely outpace relatively moderate supply by a considerable amount. And with a wide range of debut issuers in a considerable number of new jurisdictions expected to surface, the outlook is very promising.

Canadian issuers are expected to concentrate on building their regulatory buffers in 2021 mainly with dollar senior issuance with bankers suggesting that analysts’ covered bond supply forecasts for next year, which are considerably above €10bn, are overly optimistic.

After a remarkable year, GlobalCapital reflects on some of the most important stories in the bank finance and covered bond markets of 2020.

The European Central Bank's various purchase programmes are set to continue shaping covered bond issuance next year, but away from the reach of the ECB, more niche markets are expected to flourish. Collected below is a selection of GlobalCapital’s covered bond outlooks for next year.

Bank financing deals are expected to be on the low side in 2021, thanks to the provision of cheap, easily accessible central bank funding and high deposit inflows. Even so, regulatory funding is requisite and covered bonds will still provide an imperative source of long term funding, writes Bill Thornhill.

Banks are usually fast off the blocks in the January funding window, frontloading their most vanilla issuance and then picking their spots with strategic deals. Covid has put a different spin on the race in 2021, say syndicate officials. Hybrid capital and senior unsecured are likely to get off to a strong start before spreads catch up with economic reality later in the year.

The European Central Bank failed to provide the “big bazooka” that some capital market participants were hoping for at its meeting on Thursday. But the central bank did show its willingness to continue financing bank lending until the economy starts to recover, suggesting that FIG supply volumes face another difficult year in 2021.