Covered Bonds

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.

Italian FIG supply is likely to remain limited over the rest of this year as Parliamentary budget negotiations and concerns over the presentation of Banca Carige’s capital conservation plan raise deal execution risk. However, one or two covered bond deals cannot be ruled out.

Banca Carige’s covered bonds could soon be downgraded by Moody’s to sub-investment grade territory but, given the size and quality of the collateral pool, further downgrades could present a buying opportunity.

Despite a deterioration in the affordability of housing in New Zealand, loan-to-value ratios are low and homes are comparatively more affordable than they are in much of Europe. Even though credit risks remain contained, it seems likely that spreads in the New Zealand covered bond market are set to be repriced wider.

Green Italian bond supply has good scope to grow, and banks are likely to play a central role in the rise, according to Standard and Poor’s. Given the old age of Italy’s building stock and the importance of financing for small and medium-sized enterprises (SMEs), green covered bonds and green European Secured Notes could play a vital part.