Covered Bonds

A senior bank investor buying for his firm’s liquidity coverage ratio (LCR) portfolio told GlobalCapital on Thursday that he does not fear negative yielding covered bonds. What he fears is a glut of long dated issuance that he cannot buy. But issuers remain unwilling to bring serious size with a negative yield.

Yields have fallen so steeply and spreads have tightened so much in the covered bond market that the distribution of risk has become even more ‘asymmetric’ said a major asset manager, who feared bank treasury accounts would become less inclined to buy now that 10 year covered bond yields are negative.

Korea’s Financial Conduct Authority has supported the covered bond market this year with a series of new measures that aim to stimulate demand and supply. Its actions should promote local currency issuance, building on this year’s strong start.

There are only eleven votes between the top three contenders for GlobalCapital’s 2019 Covered Bond Issuer of the Year award: Lloyds, Toronto Dominion and Royal Bank of Canada. These banks have issued a number notable covered bonds in euros, dollars and sterling, which are summarised in the following article.

The survey for GlobalCapital's Covered Bond Awards 2019 is due to close on January 16. You don't need to be a subscriber to vote.

A wide divergence of opinion has emerged among covered bond analysts over the future of covered bond spreads. Some believe a 20bp tightening is due while others suspect they will widen.

Ahead of the 2019 Covered Bond Awards, GlobalCapital used Covered BondMarker and Dealogic data to assess which banks have performed best in the market over the last year. BNP Paribas was found to have worked on some of the most impressive covered bonds, HSBC helped arrange the largest volume of sales, while LBBW has taken the biggest share of the euro market.

The Spanish non-bank mortgage lender Unión de Créditos Inmobiliarios (UCI) is set to issue an unusual structured covered bond through a special purpose vehicle. The transaction works a little like legacy multi-Cédulas deals, benefiting from a liquidity facility that allows for a soft bullet extension.

Populism and economic change are melting down old idols. When the next crisis comes, new fiscal and monetary tools will be used — including helicopter money.

FIG bankers believe that issuers will refrain from rushing into the primary market following the summer break, waiting instead to hear what the European Central Bank has to say in September.

Banks in Japan might not be able to copy the structure of SMBC’s debut covered bond, resulting in a lack of uniformity in the market that may cause concern among investors. This stands in contrast to Korea, where banks are now exploring issuing in Korean won as there is a law in place that supports these instruments.

Nationwide Building Society took the opportunity to issue a £1bn three year Sonia-linked covered bond on Friday, pricing the deal flat to fair value. With Brexit negotiations expected to raise execution risk and volatility, another UK issuer could jump in with a follow-on deal early next week.