Covered Bonds

Alpha Bank Romania is preparing to sell a new deal in euros in the first quarter of 2019, in what would be the first ever issuance of covered bonds from the country.

If the UK were to crash out of the EU without securing a deal it would throw up a host of legal and regulatory risks for UK and European covered bonds and put a dampener on otherwise supportive market conditions, Moody’s said in a report published this week.

DCM bankers believe that financial institutions will be wary about jumping straight into the covered bond market in January, after a tricky end to the year for the asset class.

Kookmin Bank has issued the second Korean covered bond of this year but the first in dollars and its first in more than two years.

Covered bond spreads are likely to widen further into the start of 2019, but that will serve to make them more attractive to investors, especially relative to sovereign and agency alternatives. And since investors will have a slew of cash to put to work, it seems likely it will encourage buying.

Net covered bond supply from France is likely to fall in 2019, which should support spreads. However, French banks were among the most active users of the the European Central Bank's Targeted Longer Term Refinancing Operations (TLTRO), which, as it starts to mature, will need to be refinanced - and the covered bond market could be poised to provide some of that funding.

Germany will head covered bond supply in 2019 with high redemptions and a booming housing market set to fuel volumes.

Repaying funding received under the European Central Bank’s targeted longer-term refinancing operations (TLTROs) is likely to raise funding costs but, as most Iberian banks have made plans, refinancing risks are limited, according to Moody’s.

Turkey’s Ziraat Bank is planning to issue covered bonds and has published a base prospectus for its €1bn programme. However, it is questionable whether a euro benchmark from the issuer will be seen any time soon.

The European Mortgage Federation-European Covered Bond Council (EMF-ECBC) has set out a definition of an energy-efficient mortgage which should enable ‘a quick roll-out’, according to the European Commission.

Green covered bond issuers should make sure to bring 'additionality', according to Timo Boehm, portfolio manager at Pimco. He also indicated that these deals did not deserve favourable pricing treatment.

Santander Brasil has tested the country’s Letra Imobiliária Garantida (LIGs) covered bond regime with two privately placed deals.