Covered Bonds

After restructuring its soft bullet programme to a conditional pass through (CPT), Alpha Bank’s covered bonds have been upgraded to Baa3, making them eligible for repo with the European Central Bank, thereby improving their appeal with investors, putting the bank in a stronger position for a return to the market.

Europe’s peripheral banks are likely to make most use of the third Targeted Long Term Refinancing Operation (TLTRO III), but covered bond issuance's prospects look strong, said bankers after the European Central Bank’s meeting on Thursday.

PKO Bank Hipoteczny issued its debut green covered bond on Wednesday, the first deal of its type from Poland. This deal is the ninth covered bond with an environmental and social governance (ESG) purpose to have been launched this year and, according to Commerzbank research.

Slovenská sporiteľňa’s first euro benchmark covered bond attracted strong demand from investors on Wednesday reflecting the transaction’s tempting returns in a largely negative yielding market, as well as its top credit rating.

Slovenská sporiteľňa mandated leads on Tuesday for a euro-denominated mortgage covered bond. It was a slow start to the month in covered bonds, but the Slovak issuer could break the quiet.

Peripheral and UK covered bonds have weakened amid broader deterioration in credit market conditions. But with activity muted the main focus is on Tuesday’s Euromoney/ECBC Covered Bond Forum in Toronto.

Ulf Erlandsson, the well known green bond investor, and Knut Kjaer, founding CEO of the $1tr Norwegian oil fund, are exploring starting a new investment strategy called Diem Green Credit.

A sharp fall in Bund yields and swap rates has heightened the search for better returns. Bankers have been quick to tout covered bonds that pay a spread above mid-swaps as the answer to rates investors' troubles.

Covered bond spreads have tightened a long way since the year began and, with risk aversion creeping up, it is likely that new issue premiums will rise too, particularly since some investors will be inclined to book profits.

The Office of the Superintendent of Financial Institutions (OSFI) in Canada has increased covered bond issuance limits which should improve issuance flexibility among Canada’s smaller banks — leading to possible issuance from names like Equitable Bank among others.

SMBC has mandated leads for a roadshow with plans to issue its first dollar covered bond and the second in euros.

Covered bond deals issued on Tuesday by the Swedish Covered Bond Corp (SCBC) and UniCredit Bank Austria were priced tightly but the market proved softer than recent sessions and price sensitivity limited the Swedish bank’s size ambitions.