Covered Bonds

NatWest Markets has hired an experienced covered bond trader from Nomura. The move is the latest example of staff swapping between the two firms, but also underscores the UK’s bank ambitions plans.

The covered bond industry and the Capital Markets Union (CMU) hit a new milestone on Thursday after the European Parliament’s plenary in Strasbourg adopted the text of the Covered Bond Directive just after midday.

ABN Amro tapped into bank investors’ thirst for yield amid low interest rates this week with a 20 year covered bond. The Dutch deal followed a previous 20 year from MünchenerHyp (MuHyp) and comes as European investors are increasingly under pressure to reach for yield.

Moody's has given Estonia’s newly established covered bond framework a mixed report, an assessment that will be a helpful guide for the other countries in the Baltic region, which plan to use special purpose vehicles to get around some of the problems their neighbour faces.

The Financial Conduct Authority has set out plans to amend the UK’s regulated covered bond framework once European Union legislation comes into force.

Covered bond spreads are expected to widen if the European Central Bank increases its deposit rate from minus 0.4% to 0% across its whole portfolio. But some market participants think the ECB will adopt a tiered approach to the €2tr of excess liquidity held on deposit, which should not greatly affect covered bond spreads.

ABN Amro returned to the covered bond market on Monday to issue the largest 20 year transaction so far in 2019. Banks have increasingly found favour in placing deals with the ultra-long maturities, amid renewed speculation that the European Central Bank could restart asset purchases.

MünchenerHyp (MuHyp) issued the longest-ever benchmark Pfandbrief on Thursday, tapping into investors’ thirst for yield amid low interest rates. Investors poured into the book, lodging more demand than for any Pfandbrief issued for at least eight years.

Nykredit has published a green bond framework and intends to issue its first green covered bonds, in floating rate Danish kroner and Swedish kronor, in May. The benchmark deals are expected to qualify for the best capital and liquidity treatment.

Aareal Bank launched the first Reg S dollar covered bond of the year on Wednesday. With the bonds offering a substantial pick-up to where Aareal’s euro benchmarks trade, heavy demand came from European investors.

Alpha Bank Romania plans to issue the first covered bond from Romania under the country’s newly established legal framework.

The newly published Covered Bond Directive is viewed favourably by credit rating agencies, but it will not necessarily drive covered bond rating upgrades— in stark contrast to the Bank Recovery and Resolution Directive.