Covered Bonds

The covered bond market has a reputation for allowing tough trades to be done, so when My Money Bank postponed its debut deal, the product was imprudently tarnished. The situation could have been avoided had the deal been launched a week earlier or sometime later — just not last week.

Amendments proposed by the European Parliament’s economic and monetary affairs committee (Econ) in response to the European Commission’s (EC) proposed covered bond directive would fragment the market, said Moody’s.

The European Parliament’s shadow rapporteurs have submitted a number of new amendments to the European Commission’s proposed covered bond directive. In stark contrast to the EP's first amendments, the shadow rapporteurs consider bonds with extendable maturities "less risky".

Despite a wide double digit starting spread, My Money Bank’s (MMB) inaugural covered bond was unable to get the necessary traction to build a convincing trade, and, by noon, the deal was only 80% subscribed. The deal was subsequently postponed.

BNP Paribas Fortis managed to get an oversubscribed order book for its seven year covered bond and priced the deal inside the previous Belgian issue from ING. However, the deal was unusually slow to build and, with market conditions deteriorating, spreads are expected to widen.

La Banque Postale (LBP) won plaudits from rival bankers for its comfortably oversubscribed €750m covered bond which was priced with a modest new issue concession, despite the challenging 10 year tenor, competition with other agency supply and, most importantly, a much reduced order from the Eurosystem.

Mediobanca has privately placed a €250m tap of its Obbligazioni Bancarie Garantite six year deal issued in July.

Korea Housing Finance Corporation (KHFC) has mandated leads for its first covered bond secured on mortgages with a social cause. For the first time, the borrower is open to issuing in euros.

Skipton Building Society’s inaugural euro denominated covered bond attracted strong demand, with the generous starting spread securing early order book momentum.

The European Central Bank has reduced the maximum size of its orders in the primary covered bond market from 30% to 10%, based on the evidence of a €500m 10 year social Pfandbrief issued on Tuesday by Deutsche Kreditbank (DKB).

Two €500m deals issued by Commerzbank and ASB Finance went well enough. The New Zealand deal attracted new investors and hit the issuer’s funding target. However, Commerzbank was unable to tighten pricing by much, underscoring the impression that market sentiment had deteriorated slightly.

Crédit Agricole attracted strong demand for its four and 20 year two part covered bond on Friday, partly reflecting the prudent choice of tenors.