Covered Bonds

Covered bond spreads are expected to widen, but the tone was hardly apocalyptic at the ECBC/Euromoney covered bond conference on Thursday.

As the market waits for Brazilian banks to launch the first covered bonds out of the country, market participants from the country say it provides the lenders with a useful new instrument. But whether they can reach investment grade status in euros or dollars depends on currency risk mitigation, according to a Moody’s official.

Negotiations between the European Parliament, the European Commission and the covered bond industry around asset eligibility are like trying to “put a square peg in a round hole” and have proved to be the “mother of all discussions”, said key representatives of the two organisations at the European Covered Bond Council’s (ECBC) 28th Plenary Meeting in Munich on Wednesday.

Deutsche Kreditbank and Skipton Building Society both announced mandates for euro-denominated covered bonds on Wednesday, with DKB’s to come as its debut social bond.

Jörg Kukies, secretary of state at the German Ministry of Finance, suggested that the EU’s proposed covered bond directive should not dilute the quality of the product too much. He also wanted to see developments on the Capital Market Union (CMU) by the end of the year and called for an agreement on third-country central counterparties (CCPs).

Santander UK needed to offer an unusually attractive concession for its second euro covered bond deal of the year, but priced its first sterling Sonia-linked deal in line with Lloyds.

Raiffeisenlandesbank Vorarlberg issued its inaugural covered bond on Monday which, despite offering a modest concession, was the most oversubscribed benchmark Austrian transaction since May.

Lloyds Bank attracted stellar demand for the first Sonia-linked trade from a FIG borrower. The covered bond format was swiftly followed by a senior unsecured deal from Royal Bank of Canada. Bill Thornhill reports.

Wüstenrot Bausparkasse issued a €250m eight year Pfandbrief and, though it was smaller and attracted less demand than its debut deal, the new issue premium was tight.

The European covered bond industry this week rejected most of the recommendations for the covered bond directive made by the European Parliament Committee on Economic and Monetary Affairs’ rapporteur, Bernd Lucke. However, there is agreement on one important point.

Lloyds Bank found strong demand for the first Sonia-linked sterling transaction from a financial institution. Meanwhile the euro covered bond market ground to a standstill with just Wüstenrot Bausparkasse mandating leads for a sub-benchmark deal.

GlobalCapital announced the winners of its Sustainable and Responsible Capital Markets Awards 2018 in Amsterdam on Tuesday evening. This year’s two sovereign debut green finance issues, from Indonesia and Belgium, won Deals of the Year in their regions, and there were double laurels for Danone, in both the bond and loan markets.