Covered Bonds

Funding officials from Caffil, Credit Mutuel Arkéa and La Banque Postale gathered in early July to take part in a roundtable to discuss how they navigated their way through the peak of the crisis when covered bond market volatility was at its highest, and how they expect to manage funding in its aftermath, as the pernicious impact of the pandemic takes its toll.

Increasing European unemployment and a subsequent rise in the use of mortgage holidays is set to put pressure on the credit quality of European lenders and their covered bond pools, according to S&P.

Marex, a commodity and derivatives broker, has raised tier two capital in the Swiss franc market through a structured note, which it says is the first to combine a tier two host with an embedded structured product — in this case, exposure to the SMI, the Swiss equity market index.

Investors’ search for yield in covered bonds is growing more challenging by the day, as the market looks set to become more squeezed than ever because of aggressive central bank buying, soaring redemptions and diminished supply.

Kookmin Bank has priced its debut euro covered bond flat to where its higher rated compatriot, Korea Housing Finance Corporation (KHFC) would have been expected to come. The deal was said to have attracted additional demand due to its social theme, spurring hopes that further similar issuance would follow.

Lower overcollateralisation (OC), tighter spreads and access to the ultra-long end of the curve are likely to cause some Dutch covered bond banks to reconsider whether it is still viable to issue conditional pass through (CPT) deals or follow NN Bank, which recently switched from to soft bullet issuance.

GlobalCapital will open the poll for its Covered Bond Awards 2020 shortly and welcomes feedback on the award categories and nominations for shortlists.

The Swiss government has recently approved draft amendments to its Pfandbrief law that will increase transparency and legal certainty, reducing the risk of a fire sale and payment default.

Kookmin Bank is expected to surface later this week with its first euro covered bond which will fund social housing. The deal is to emerge amid mounting concern that diminishing supply, rising redemptions and aggressive central bank buying will cause an unprecedented technical squeeze in the covered bond market.

Fitch has downgraded its covered bond ratings for Banco Montepio amid a deterioration in the outlook for residential mortgage loans in Portugal, exacerbated by the impact of the coronavirus pandemic.

Skipton Building Society is looking for approval from investors to convert the interest basis on one of its covered bonds from Libor to Sonia.

Syndicate bankers are scrambling to make sense of the covered bond market, where sentiment has been changeable in recent weeks. Amid volatility and small issuance windows, sustainable bonds have proven a safe strategy to ensure successful deals.