Covered Bonds

German issuers have wasted little time in selling preferred senior debt, after regaining access to the funding product through a legislative change last month. Berlin Hyp reopened the market with a tightly priced but thinly subscribed deal on Monday, and Commerzbank is looking to follow close behind with a debut offering of its own.

Berlin Hyp is set to become the first German bank to sell a preferred senior bond after issuers regained their access to the funding tool through recent legislative changes.

The sovereign credit crisis spurred lawmakers to undertake a number of major initiatives designed to sever the ‘doom loop’ — the link between sovereign and bank credit risk. Recent events in Italy and Turkey show the limits of these policies, but not their impotence.

The banking industry has largely backed efforts to use sustainable financing to cut capital charges through a ‘green supporting factor’. But regulators may use the stick, as well as the carrot, through temporary capital add-ons for dirty lending — something the financial industry is unlikely to welcome.

Covered bond primary activity is expected to pick up from as early as next week with a couple of German issuers understood to be monitoring the market. FIG activity is predicted to ratchet up again the following week as borrowers move in advance of potentially negative rating news.

Fears about the Turkish exposures of European banks have done little to distract fixed income investors from a brewing crisis in Italy. They may even have sharpened focus on the scale of the problems facing the country.

Moody’s downgraded Banca Carige’s residential mortgage backed covered bonds this week, but kept them in investment grade territory. Spreads barely moved in the aftermath, suggesting investors have already sold their exposure.

Austria’s Ministry of Finance will finally set out draft proposals to harmonise the country’s three covered bond legal frameworks early in 2019 after years of deliberations. And, with the introduction of new measures that bring the unified law into line with best practice, rating upgrades are likely.

Ålandsbanken, a small bank headquartered in the Åland Islands, an autonomous region in Finland, is seeking to launch its first public sale of a senior bond as part of a drive towards meeting its minimum requirement for own funds and eligible liabilities (MREL).

After Fitch upgraded Greece’s country ceiling into investment grade territory last Friday, the covered bond ratings of National Bank of Greece and Alpha Bank should also improve with spreads on Alpha's recent five year having the best potential to tighten.

The nominations for GlobalCapital's Sustainable and Responsible Capital Markets Awards 2018 have been revealed, as a result of our worldwide market poll, conducted in July.

The Bank of Italy’s (BoI) proposal to loosen Obbligazioni Bancarie Garantite (OBG) issuance restrictions should be credit positive for the country’s small banks said Fitch in a report on Friday. Despite that, an improvement in distributed supply may prove limited.