Covered Bonds

September’s highly oversubscribed covered bonds meant the European Central Bank’s primary market order was considerably cut, forcing it to scour the secondary market for paper. With October’s supply likely to be lower and redemptions expected to soar, the ECB must become an even more aggressive buyer, or watch its portfolio shrink.

Fédération des Caisses Desjardins du Québec (CCDJ) mandated leads for its first dollar covered bond in a year on Monday. The issuer joins Sumitomo Mitsui Trust Bank, which on Monday crystallised plans to press ahead with its debut deal following a period of soft marketing, while Swedish non-conforming lender Bluestep Bank commenced marketing on Monday.

Turbulent conditions forced several banks to delay bond issuance plans this week, and one even pulled a transaction after launch. Deal flow is likely to pick up again soon, but the cost of funding is certain to be higher, writes Tyler Davies.

Deutsche Pfandbriefbank attracted more demand for its first Sonia-linked Pfandbrief on Thursday than it has for any covered bond it has ever issued. It was the first public deal from a financial institution with a guaranteed high coupon.

Take-up was higher than expected for the European Central Bank’s latest series of Targeted Longer-Term Refinancing Operations on Thursday. But an overall allotment of €174bn still paled in comparison with the last round, as banks showed they already had plenty of excess liquidity on their balance sheets.

Norway’s Ministry of Finance has said it will apply tighter mortgage lending standards from next week after temporarily loosening them to support the economy. The move, which was not unexpected in light of the resilient state of the economy and stubbornly high house price inflation, will minimise mortgage defaults.

Debut issuers Bausparkasse Schwäbisch Hall and Sumitomo Mitsui Trust Bank are marketing their inaugural covered bonds amid a pick-up in secondary market trading.

Luminor’s Estonian cover pool will have Latvian mortgages, Bawag’s Austrian cover pool will include Dutch mortgages. And once merger plans are fully completed, Caixabank’s cover pool will include those from Bankia, making it Spain's biggest, with a share of almost a third of the Spanish covered bond market.

If the European Central Bank (ECB) is serious about eventually scaling back its quantitative easing programme and encouraging a return to normal market funding, it will need all tools at its disposal. That suggests there is scope for an instrument that delivers a low cost of funding and supports the European economy. European Secured Notes (ESNs), which are likely to form part of the European Commission’s capital markets action plan, which is to be unveiled this Thursday, could provide the answer.

Green and sustainable finance is going through tumultuous change, as it crashes into the mainstream of capital markets, said speakers at the GlobalCapital Sustainable and Responsible Capital Markets Forum last week. They emphasised the importance of tying financing to credible transition plans.

Last week’s surge in covered bond issuance caused certain Norwegian deals to trade more softly by Monday. But traders viewed it as a buying opportunity, given robust technical backdrop.

Nationwide Building Society is buying back £2bn of covered bonds in euros and sterling. UK covered bond issuers are buying back securities as risks increase ahead of the end of the Brexit transition period.