Covered Bonds

Banco BPM’s has amended its covered bond documentation to include loans affected by Italy’s mortgage moratorium in the asset coverage test (ACT), highlighting the challenge to transparency caused by discrepancies between issuer's programmes — even within the same country.

Luca Bertalot, secretary-general of the European Mortgage Federation-European Covered Bond Council (EMF-ECBC), speaks to GlobalCapital about the covered bond market living up to its reputation, the ECBC’s Covid-19 task force and monitoring report, transparency enhancements, the scope for a revival of the public sector market, and how green European Secured Notes (ESNs) and covered bonds secured on energy efficient mortgages could be flagships in Europe’s economic recovery.

Investors were "hugely receptive" to Hypo Noe’s seven year Pfandbrief issued on Tuesday, suggesting it is only a matter of time before another borrower tests demand further along the curve with a 10 year covered bond — which would be the first since early March, before the coronavirus pandemic disrupted markets. Reopening such long dated funding would provide a compelling alternative to using central bank liquidity.

An abundance of cheap central bank funding has negated the need to issue short dated covered bonds but access to competitive funding at the long end would provide a compelling reason for issuers to return to the primary market, said bankers on Monday. A seven year transaction mandated by Hypo Noe on Monday is likely to provide a test of investor appetite.

HSBC Canada issued the most oversubscribed dollar-denominated Canadian covered bond in years on Thursday, and still managed to price 28bp tighter than the Canadian heavyweights.

NN Bank has announced plans to set up a soft bullet covered bond programme, which is likely to result in a considerable saving in the cost of funding relative to its existing conditional pass three (CPT) programme and enable it to access long term funding with maturities beyond 10 years which, until now, are tenors that have not been available.

Mortgages in covered bond pools that fall 90 days past due typically then become ineligible for inclusion and are replaced. But, the unprecedented volume of mortgage moratorium initiatives and other forbearance measures introduced in response to the coronavirus pandemic means the market must now offer a degree of latitude, which it is planning to do with the launch of new transparency measures.

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.