Covered Bonds

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.

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.