Covered Bonds

Canadian Imperial Bank of Commerce reopened the Australian dollar covered bond market on Thursday with one of the largest deals from an overseas issuer at a cost that matched that of its dollar funding.

The European Central Bank is not expected to provide too much detail on its forthcoming asset purchase programme on Thursday and will probably wait until September, bankers believe. Covered bonds have room to perform but, given negative yields and uncertainty over the scale and composition of purchases, not by much.

Investors jumped at the chance to buy Canadian Imperial Bank of Commerce’s Australian dollar covered bond on Wednesday.

The Covered Bond Awards 2019 survey is off to a very strong start with roughly 300 completed responses registered in the first week. Two banks are running neck and neck for the top award, but with four weeks to go, pecking orders can change.

A cavalcade of “familiar names” have come to the market over the last week. SSAs, corporates and FIG issuers printed across the euro curve, while a trio of supranationals were also active in emerging market currencies.

With yields at all-time lows and spreads continuing to fall, it is difficult to find value in covered bonds. But with supply drying up and further stimulus from the European Central Bank on the way, there are some overlooked parts of the market which ought to perform, traders say.

Standard and Poor’s has upgraded its ratings for covered bonds issued by Kutxabank, as the Spanish lender looks ahead to a series of redemptions over the course of the next year.

Lloyds Bank was able to increase the size of its second dollar bond issued in less than a year, but still paid a minimal new issue concession. It followed Munchener Hypothekenbank (MuHyp) which issued a highly oversubscribed and tightly priced Pfandbrief on Tuesday.

Borrowers across the eurozone periphery will have spied a chance to raise capital after deals from Greece and Italy’s Banco di Desio this week.

Robust demand for this week’s covered bond from Banco di Desio e della Brianza has boosted hopes of further supply from the eurozone periphery. But, with further European Central Bank stimulus on the way, a supply ‘onslaught’ is unlikely.

Nationwide Building Society has restructured the swaps underlying its covered bond programme to ensure a proportionate share of the cover pool's mortgage interest will be swapped to Sonia, winning approval from Moody's this week.

Lloyds Bank was able to increase the size of its second dollar covered bond issued on Wednesday — its second deal in this market in the last year. In doing so, it still managed to pay a minimal new issue concession.