Covered Bonds

Estonia’s LHV Pank is set to become the second bank in the country to take advantage of the country’s covered bond law and, having set up a programme and gained central bank authority to issue, Moody’s this week assigned a rating to its programme.

The Danish covered bond market is expected to maintain its exemplary performance with smooth execution likely in the quarterly auctions due to commence next week, a local banker told GlobalCapital on Wednesday.

Martin McKinney, senior manager of medium-term funding at Santander UK, speaks to GlobalCapital about the impact the UK’s lockdown on the bank’s balance sheet, central bank liquidity, and the bank’s changing mix of regulatory and pure funding.

HSBC Canada is set to become the third Canadian bank to issue a dollar covered bond this year, mandating leads for a three year transaction on Tuesday. Given a strong secondary market performance, HSBC Canada should be able to price its deal a lot tighter than its predecessors.

A strong and growing deposit base, an active private placement market and sizeable proportion of prefunding has put the Pfandbrief banks in a strong liquidity position, the chief executive officer of the Association of German Pfandbrief Banks (VDP), Jens Tolckmitt, told GlobalCapital in an interview on Tuesday covering a wide range of other topics such as real estate values, the mortgage lending value and Basel III’s output floor.

The prospect of switching out of Pfandbriefe exposed to a high proportion of foreign commercial real estate and into higher-yielding, and more liquid, Scandinavian covered bonds exposed to domestic loan portfolios that are less affected by the coronavirus, is a tempting choice. But the protection Pfandbriefe offer investors and the scarce supply outlook means spreads on the product will remain supported, said bankers on Monday.

Lloyds Bank has got most of its covered bond and senior funding out of the way already this year — ideal, given the threat of the coronavirus pandemic to both bond markets and the wider economy. But the bank has also been busy optimising its capital stack, which should support its lending just when it is most needed.

Caffil’s debut Covid-19 bond issued this week has shown that the moribund public sector covered bond market can play a crucial role in financing the response to the coronavirus crisis. The deal implies that the hitherto dormant public sector programmes many issuers have set up across Europe have scope to be reactivated to provide stable long-term financing for debt-ridden regional borrowers.

Caffil this week issued the first Covid-19 covered bond, securing vital funding for French hospitals to fight the pandemic. The deal emerged just as public sector borrowers, such as the German Laender, face mounting funding needs to cope with the pandemic, sparking debate over whether the hitherto moribund public sector Pfandbrief market could provide a vital source of cash, writes Bill Thornhill.

Swiss franc bond spreads have failed to tighten as much as they have in the euro market, and the lack of price action meant few issuers ventured out this week. A trio of domestic deals comprised the only new supply.

Recently issued Canadian covered bonds have posted among the strongest performances in the covered bond market and still look cheap relative to Nordic deals, said traders on Wednesday. Based on Markit’s iBoxx covered bond indices, a range of other markets, such as Australia and the UK, also look very cheap, but offers are much harder to find.

A €1bn five year covered bond issued on Tuesday by Caffil, that was designed to provide funding for French hospitals in response to the Covid-19 pandemic, has demonstrated that the market for public sector covered bonds, which has been in decline for more than a decade, could now be reinvigorated. Higher local authority spending could well find its way into the cover pools of French and German covered bond issuers, the head of treasury and financial markets at SFIL, Caffil's parent organisation, said on Wednesday.