Covered Bonds

The head of financial reporting and accounting at the European Commission, Didier Millerot, speaks to Ruth Beddows, managing director of GlobalCapital and Euromoney Conferences, about the Covered Bond Directive and third country equivalence.

Moody's has published a new issue report for the mortgage covered bond programme of Raiffeisen Bank International (RBI), assigning the bonds which are expected to be retained for central bank repo' purposes, a rating of Aa1.

The Covered Bond Directive provides a basis for harmonisation of the European covered bond market and sets a standard for other countries to follow suit. But following approval of the final text this week, market participants expect the new law will give member states plenty of leeway to interpret the rules.

Toronto–Dominion Bank’s (TD) €1.75bn five year covered bond, which was issued on Wednesday, was priced 13bp tighter than where it might have launched in January when five other Canadian borrowers entered the market with similar deals.

Despite higher than expected issuance so far this year, the covered bond market shows little sign of fatigue. Investors seem desperate to get hold of whatever comes their way, for fear of missing out.

The final text of the covered bond directive strikes a balance that provides the flexibility to introduce new assets while defending the product’s credit quality and avoiding potential market disruption.

Leeds Building Society showed genuine leadership on Tuesday with its first Sonia-linked covered bond, a deal that was priced tightly with a well subscribed order book. Its stance stood in contrast to UK Parliamentarians, who dithered on a series of indicative votes on alternative Brexit strategies that were held on Monday night.

The final text of the Covered Bond Directive offers the opportunity for issuers and regulators to secure covered bonds by a wider range of assets than currently permitted. Bankers said on Tuesday that the wording strikes a good balance that provides flexibility for innovation while also protecting the product’s credit quality.

Berlin Hyp has offered to buy its sole remaining public sector Pfandbrief, which is due to mature in May, after Moody’s withdrew the bond’s Aaa rating on Monday.

Banca Carige has sold one of its outstanding covered bonds back into the market as the ailing Italian lender comes into a crucial period for turning its business around and attracting buyout bids.

Westpac and Compagnie de Financement Foncier (CFF) kicked off the new quarter on Monday with large euro benchmarks that were priced flat to their curves.

European banks have been given a boost in equity and debt markets this week, after Peter Praet, a member of the European Central Bank’s executive board, suggested that the terms of a new series of targeted longer term refinancing operations (TLTRO III) could be made more favourable for banks, if needed, to help them lend to the economy.