Covered Bonds

April 2018 was one of the heaviest Aprils in the last decade for covered bond supply, and with the Eurosystem buying less in the primary market, offers are still easy to find. But with near term supply expected to moderate and the Eurosystem potentially becoming more active in the secondary market, bankers are hopeful that spreads will stabilise.

Caja Rural Navarra’s fruitful return to the covered bond market last week was underpinned by several important elements, not least its decision to update and improve its sustainability framework. In the context of the European Central Bank’s diminishing support, the bank’s efforts offer a salutary guide to other borrowers, who will soon be obliged to compete harder for investors’ attention.

The Covered Bond Investor Council (CBIC) has responded to the European Commission’s (EC) proposed covered bond directive, requesting a more precise definition of eligible assets among a number of other recommendations.

Raiffeisen-Landesbank Steiermark and Hypo Oberösterreich are the only two issuers visibly planning covered bond deals, but with three major Spanish banks emerging from blackout on Friday, there is hope for more Spanish supply. In the meantime, secondary market flow has become more balanced with demand noted particularly at the long end.

Canada’s office of the superintendent of financial institutions (OSFI) is expected to raise limits on covered bond issuance, paving the way for additional supply from established and new names.

Santander has hired a new covered bond trader who shares the same name as the trader it recently lost.

Skipton Building Society issued its inaugural covered bond on Wednesday at a good size and a fair spread. The sale follows a pattern of wholesale funding diversification for the borrower that began last year.

Caja Rural de Navarra (CRN) priced the first Spanish covered bond in almost three months flat to its curve and with the highest subscription ratio of any investment grade (IG) covered bond issued this year. The recently upgraded sustainable offering, which was rated six notches above the Kingdom of Spain, also offered a rare spread pick-up over the sovereign.

The moribund dollar covered bond market is set for a renaissance as the cost advantage compared with other currencies and other sources of wholesale funding has improved. Issuers ought to be renewing alternative sources of demand.

Swedbank announced in its results on Tuesday that a proposal to change the regulatory treatment of Swedish mortgages would lower its common equity tier one (CET1) ratio. The rule change will also take Swedish banks’ additional tier one (AT1) bonds closer to their trigger levels.

Caja Rural de Navarra (CRN) mandated leads on Tuesday for a €500m seven year sustainable covered bond which is likely be launched on Wednesday. At the same time, Landshypotek Bank AB mandated leads for a roadshow to present its green framework ahead of a five year Swedish krona covered bond benchmark.

Credit Mutuel CIC issued the widest 10 year French covered bond of this year on Monday, reflecting higher net supply in 2018 compared with previous years and less central bank buying activity. But with net supply set to fall, spreads should soon stabilise.