Covered Bonds

New liquidity requirements will cause a boom in senior bond issuance in the same way that the introduction of capital requirements led to a surge in the supply of subordinated debt, according to analysts at JP Morgan. The analysts said that investors have been underestimating how quickly this trend will impact the euro market.

Core European covered bond spreads and non-eurozone deals look well placed to weather volatility over the next few weeks and potentially through to year end depending on supply, market makers believe. Even in the eurozone periphery, the situation is considered orderly.

Slovakia’s Slovenská sporiteľňa (SLSP) has issued the first Aaa rated Slovakian covered bond paving the way for the country's first publicly syndicated euro benchmark. UniCredit has also privately placed a €500m Slovak covered bond.

A senior fixed income syndicate banker at UniCredit has retired, GlobalCapital understands. Bankers at rival firms hailed him as “a true original and a character”.

Korea Housing and Finance Corporation (KHFC) and Berlin Hyp (BHH) are lining up new covered bond deals, but the sell-off in Italian sovereign debt risks weighing on the market.

The Spanish covered bond market faces a day of reckoning now that the European Central Bank will be buying a lot less of it leading Barclays analysts to recommend investors look elsewhere. However, others say Cédulas supply is likely to remain limited through the course of next year, and given the market’s "terrible liquidity", executing any trade ideas in the secondary is likely to prove a non-starter.

The European Banking Federation has come out in support of the European Commission’s proposed covered bond directive though it has a some reservations, similar in nature to those already voiced by the European Covered Bond Council.

Core European covered bonds with intermediate to long tenors offer great value against sovereign and agency bonds, says one big beast covered bond investor. But with the European Central Bank buying 20% less in primary deals, a modest spread widening is needed to revitalise sentiment.

Berlin Hyp AG (BHH) has mandated joint leads for a roadshow to update investors on its green Pfandbrief programme, after which it plans to issue a €500m deal.

ING’s German subsidiary has issued its largest ever Pfandbrief, one of the biggest from a German borrower this year, which, in the context of a volatile market backdrop, was deemed a great success.

NordLB has recently expanded its covered bond trading desk, hiring a dealer with considerable experience in the market.

The vibrancy of the sterling covered bond market this year is beyond doubt, after 21 deals from 17 issuers. UK issuers have accounted for just over half of 2018’s supply, with the remainder made up from a dozen overseas borrowers, a large proportion of which include Canadian and German names.