Covered Bonds

Only a few countries have made headway in the implementation of the Covered Bond Directive and, with just a few months left, there are growing concerns that its transposition will be delayed, said bankers attending a virtual event sponsored by the European Covered Bond Council (ECBC) on Wednesday.

The covered bond supply outlook is dismal and could worsen but that means spreads are well protected, even if competing supply in the rates market from the EU ramps up, a major investor told GlobalCapital on Wednesday.

Covered bond spreads are unlikely to widen much say dealers, plenty of whom are long inventory, especially in recently issued deals. Deals that are ineligible for central bank buying programmes, however, are vulnerable.

Münchener Hypothekenbank (MuHyp) issued a €500m 20 year flat to fair value on Tuesday even though market conditions were volatile.

Bankers are confident that Canadian covered bond issuance will resume after the Bank of Canada withdrew the repo eligibility of retained covered bonds, while honouring existing repo deals. But bankers are split as to whether supply will restart this year or be deferred until next year.

Nearly half of Europe’s banks do not intend to participate in the next rounds of the Targeted Longer-Term Refinancing Operations (TLTRO III), according to the results of a new survey published by the European Central Bank this week.

Muenchener Hypothekenbank has mandated leads for a rare 20 year covered bond benchmark, the first from a German issuer this year and only the third from the whole market. Rates have collapsed rendering the recently popular 15 year tenor less attractive.

Investors are sanguine about the fact that covered bonds pledged for repo with central banks hit a new record this year. Although issuers acknowledge the need to appear regularly with benchmarks in the public market, some have scaled back, but this is likely to prove temporary.

UK banks and building societies are struggling with difficult aspects of incorporating climate change into their risk management, as demanded by the regulator, a PwC survey has found. The answer to some of their problems could be a non-risk initiative: science-based targets.

Dual recourse structures have become increasingly popular in India after last year’s debut from Kogta Finance. And with the sanctity of bankruptcy remoteness successfully tested in the courts, sentiment towards such structures has improved further. This could help pave the way for a national champion bank to test appetite for Indian covered bonds, which would offer the country's lenders a source of long-term diversified funding that they can't get from deposits.

DZ Hyp returned to the covered bond market for the fourth time this year on Thursday to issue a €1bn eight year mortgage Pfandbrief. The deal showed that any uncertainty over the relative value of covered bonds has been firmly swept away after the European Union’s blow out debut earlier this week.

Coventry Building Society (CBS) has set up a second covered bond programme that is secured exclusively on the mortgages originated under its buy-to-let Godiva platform, which had previously been funded through its Mercia RMBS programme. Although the covered bonds require more collateral to reach the same rating, they offer greater funding flexibility as they can be pledged for repo and are eligible for the liquidity coverage ratio.