Covered Bonds

United Overseas Bank revitalised the moribund Singaporean covered bond market on Tuesday with the first euro deal in two years and the largest from a Singaporean issuer. The bonds attracted record demand and were priced inside UOB’s curve, showing the extraordinarily receptive state of the market.

As the UK approaches the end of its Brexit transition period there are growing expectations that a trade deal will be struck with the EU. It is hoped that that will contribute to the factors driving spreads tighter on UK covered bonds.

United Overseas Bank has mandated leads for the first euro covered bond benchmark from a Singapore lender since September 2018. The deal takes advantage of the Monetary Authority of Singapore’s (MAS) recent decision to increase covered bond issuance capacity.

Dutch issuers are warming towards soft bullet covered bonds, with several having already launched deals with the structure this year, as part of a move away from conditional pass through (CPT) issuance.

Rabobank sold the largest 20 year covered bond of the year at the tightest spread it has ever achieved in that tenor on Thursday, illustrating superb market conditions.

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.