Covered Bonds

The European Mortgage Federation and European Covered Bond Council (EMF-ECBC) has established a task force to address the economic impact of the Covid-19 pandemic. The initiative emerges at the same time as the European Banking Authority’s publication of guidelines on the treatment of debt moratoria.

Crédit Agricole and Crédit Mutuel CIC attracted solid demand for their five year covered bonds this week. Although they were among the largest deals seen so far this year, supply is down, and with spreads still elevated, some borrowers are likely to rely more heavily on European Central Bank for funding than the covered bond market.

Crédit Mutuel Home Loan SFH followed Crédit Agricole SFH and BPCE on Thursday with a third French five year covered bond, which was priced at an identical spread. Even though the three issuers have raised almost €5bn between them, covered bond volumes are down this year and, with spreads at elevated levels, issuers will have more reason than ever to tap the European Central Bank for funding.

Helaba has appointed two new syndicate bankers as it looks to bolster its coverage of FIG and SSA clients. The hires are among the first following a restructuring of the German bank’s capital markets business.

Crédit Agricole jump-started the primary covered bond market on Wednesday with a deal that is hoped will re-establish something of a normal rhythm of issuance.

Canadian banks are among the largest, most profitable and best rated in the world, but that does not grant them immunity from liquidity bottlenecks. A recent spree of deals — although in some ways a show of might — illustrated that even the most fortified of lenders can appear vulnerable.

A leading covered bond investor has reacted positively to a series of measures announced by Canada’s Office of the Superintendent of Financial Institutions’ (OSFI) which have effectively provided stable access to emergency funding, including a temporary increase in the amount of covered bonds the country's banks can issue. The move comes after a heavy spell of supply that had sparked concerns that Canadian banks were struggling for cash.

The covered bond market’s reputation for a being a close knit community has served it well during this difficult period with members staying in close virtual contact as they self-isolate at home. On the whole, the experience has proved positive, though it’s clear that some have found it difficult to separate work from play.

Toronto Dominion Bank attracted a slightly larger order book for its three year dollar covered bond on Friday than Bank of Nova Scotia did for a similar deal issued on Wednesday. Both deals offered a considerable pick-up to where they would have been expected to be priced in euros, but the overall spread outlook remains a subject for hot debate. At the same time on Friday, Canadian Imperial Bank of Commerce was set to issue a ‘blow out’ three year Swiss franc deal.

The coronavirus crisis has made it difficult for banks to know how much wholesale funding they will need in the coming years. But when a window opened in the primary market this week, issuers showed that they are still focused on trying to build up their levels of total loss-absorbing capacity (TLAC), write Tyler Davies, David Freitas and Bill Thornhill.

Hesitant covered bond issuers, that had been waiting for the European Central Bank to commence buying under its Pandemic Emergency Purchase Programme (Pepp), may no longer have an excuse to wait and should return to the market soon — particularly since funding levels are cheap relative to senior unsecured, but also because wider spreads may reflect the deterioration in credit risk as opposed to liquidity risk.

Bank of Nova Scotia issued its first dollar covered bond benchmark since 2016 on Wednesday. The deal follows a series of retained Canadian dollar covered bonds that were pledged to the Bank of Canada after it recently broadened repo eligibility to include the asset class.