Covered Bonds

Cypriot banks could start selling covered bonds for the first time in a decade if the country clarifies and strengthens its issuing framework in line with new EU standards, Scope Ratings said in a report this week.

Crédit Agricole's Swiss subsidiary is selling its first structured covered bond in Swiss francs. The deal will be issued under a new programme using Swiss contractual law in a change from the French law covered bonds issued by the parent bank in the Swiss franc market. Elsewhere in the Swiss market, Münchener Hypothekenbank issued a green bond on Friday.

Newly released data compiled by the European Covered Bond Council (ECBC) underscores the robust growth of the covered bond market, with volumes rising to €2.7tr globally over 34 countries. Volumes will have exploded again this year due to the scale of retained issuance that’s been used for central bank funding.

A surge in repo-eligible issuance and deteriorating credit outlook for the retail and hotel commercial mortgage segments that secure some cover pools has pummelled the Pfandbrief market. This has been compounded by a lack of transparency leading to "an uneasy feeling" and ‘some uncertainty’ said bankers.

The European Commission has reached out to the European Covered Bond Council (ECBC) to make the case for reinvigorating the market for European Secured Notes. ESNs could improve access to crucial funding for Europe’s small and medium-sized enterprises (SMEs), which are struggling to recover following lockdowns imposed to contain the spread of Covid-19.

Covered bond issuance usually picks up around this time of year and bankers believe next week is likely to be particularly promising. Though funding needs have generally been cut, borrowers may be tempted to move before an expected surge in competing EU government bond supply that is likely to make covered bonds look expensive.

The three major rating agencies have upgraded UBI’s credit rating, to be in line with Intesa Sanpaolo’s as the latter's takeover of the former concludes. Market participants are expecting UBI’s covered bond spreads to tighten as a result.

An improvement in the cross-currency basis swap has made dollar funding look more attractive to covered bond issuers, but this is not expected to lead to higher supply with bank senior unsecured dollar paper looking the more compelling option.

Citi has taken market share from other banks in the past year to become one of only four that account for 60% of all secondary market covered bond volume traded on Bloomberg so far this year, thanks to a combination of devoting balance sheet to trading and having the appetite to take risk.

Spanish Cédulas reform has been widely anticipated for years. However, whether Spain is ready to execute the sweeping reforms necessary to bring the regime into line with the European Union’s covered bond directive remains to be seen, as the impact of the coronavirus risks diverting attention.

Nomura has ambitions to improve its covered bond market making presence, but it has a long way to go before getting close to the top, where Citi, Santander, and JP Morgan all occupy a clear lead, according to investors.

Lloyds has bought back a small amount of sterling covered bonds on a bi-lateral basis. Most investors that wanted to hand back bonds will have already done so in its previous public tender offer.