Covered Bonds

Limited supply prospects next year suggest that relentless purchases under the European Central Bank’s Covered Bond Purchase Programme (CBPP3) will continue to exert a strong influence on yields, squeezing more real money investors out of the market, even though its gross purchases may decline.

Oma Savings Bank attracted exceptionally strong demand for its sub-benchmark covered bond on Wednesday, thanks to the double digit spread pickup it paid compared to deals from compatriot Finnish national champions. Caffil, meanwhile, recently issued an ultra-long private placement and said it plans to print further out the curve.

Covered bonds are expected to remain a core funding tool next year and the outlook for supply is likely to improve. However, net of redemptions and central bank purchases, the market will remain highly squeezed.

Stadshypotek on Tuesday became the first Swedish bank to issue a euro benchmark covered bond this year, with its first euro deal secured on Norwegian mortgages. The bond was priced at the tightest spread for any covered bond issued outside the eurozone since May 2019.

Finland’s Oma Saving’s Bank has mandated leads for a covered bond and follows OP Mortgage Bank which last week issued the first Finnish covered bond since January.

The Swiss Banking Association has asked the country’s financial supervisor to consider setting up a covered bond regulatory framework that would put structured covered bonds on a par with other legally based covered bonds, such as Swiss Pfandbriefe.

Société de Financement Local (SFIL) was over 5-1/2 times covered as it brought its long-awaited debut green bond to the market on Friday, allowing it to price well inside fair value.

An improvement in risk appetite led to a rates sell-off and a spike higher in yields this week, paving the way for an explosion of covered bond supply that went far beyond the volume expected.

French agency Caisse des Dépôts et Consignations finished its 2020 syndicated funding programme with a visit to the Swiss market this week, printing an extremely tight deal through the high quality domestic covered bond curve.

OP Mortgage Bank issued a rare Finnish covered bond on Thursday, pricing the deal flat to where German issuers would have been expected to come, with the sizeable €1.25bn 10 year offering and an alluring pick-up to the issuer’s highly squeezed curve.

Despite lower yields and some price sensitivity, Bawag found solid demand for its 15 year Pfandbrief, which was issued on Thursday flat to the curve.

HSBC Canada plans to issue its inaugural deal in euros and though the bond is not expected until next year at the earliest, there is a possibility that other Canadian banks could pre-fund before Christmas if strong market conditions last.