Covered Bonds

De Volksbank mandated joint leads on Tuesday for a 20 year soft bullet covered bond, building on the earlier successes of two other issuers that recently responded to investor demand for yield with deals in this same maturity.

Apart from the UK, very few covered bond issuers have provided details on the proportion of loans in their cover pools that have been affected by payment holidays. Though covered bonds offer strong investor protection these safeguards risk being eroded.

The rise in yields following Monday’s rates sell-off has improved covered bond supply hopes. However, these have been tempered by the fact that most issuers have completed their 2020 funding and are waiting to see the outcome to European Central Bank’s monetary policy meeting in December.

Aegon Bank issued its first covered bond in three years on Monday, with the double digit spread drawing robust demand, enabling the conditional pass through bonds to be priced inside fair value, thereby catalysing a repricing of the Dutch CPT market. The deal follows a sub-benchmark 20 year soft bullet covered bond from NN Bank.

OP Mortgage Bank is set to become the first bank in Finland to issue a covered bond secured on energy efficient mortgages after announcing a green covered bond framework. The prospective deal follows a growing crowd and comes after a string of debut covered bonds with an environmental, social or governance theme issued this year.

Some market participants say the European Central Bank could open itself up to buying preferred senior bank debt if it expands its purchase programmes in December.

The Reserve Bank of Australia has announced plans to explore the potential uses and implications of a central bank digital currency using distributed ledger technology. The RBA follows the Banque de France, which last year worked with Société Générale to settle a crypto covered bond — a product that offers a number of ways to deploy blockchain technology.

Net covered bond supply is set to shrink further next year against what was an already dismal outlook for new deals. Expectations that the ECB will bring further monetary stimulus in December will only exacerbate the trend.

Although Danish covered bond issuance in euros is likely to prove limited, the domestic market continues to provide a rich seam of supply for foreign investors. Confidence is likely to have been bolstered by the limited impact of Covid lockdowns on the country's mortgage market, along with recent proposals to harmonise and update its legal framework.

The Association of German Pfandbrief Banks (VDP) has published its opinions on the proposed amendments to the Pfandbrief law. The VDP is calling for a less onerous liquidity reserve, which would be aligned with standard practice for many soft bullet maturity structures used elsewhere in Europe.

Perenna has applied to become the first UK covered bond bank and plans to issue 30 year fixed rate mortgages next year, using the Danish covered bond system that limits mismatches between the terms of the mortgages and the bonds that fund them.

Covered bonds issued by NordLB’s Luxembourg subsidiary are set to become ineligible for the liquidity coverage ratio from July 2022, according to a draft amendment published this week by the European Commission.