Covered Bonds

Investors are expecting banks to accelerate their plans to sell additional tier one (AT1) bonds in the coming weeks, but a number of recent new issues have been too tightly priced to excite some market specialists.

Canadian covered bonds are set to become even more attractive under the country’s newly published bail-in regulations, delegates heard at the European Covered Bond Council’s 27th plenary session held in Vancouver on Wednesday. If immigration policy remains unchanged, there will be limited scope for a correction in Canadian house prices.

Caisse Francaise De Financement Local (Caffil) found good demand for a €1.5bn 10 year with a final spread close to what it could have achieved before the covered bond purchase programme begun. The deal followed a €1bn five year from Commonwealth Bank of Australia (CBA).

Skipton Building Society has mandated leads for a roadshow ahead of its first sterling benchmark covered bond, while Sbanken Boligkreditt has already begun marketing its debut euro benchmark.

Caisse Francaise De Financement Local (Caffil) has mandated leads for a 10 year euro benchmark Obligation foncière, and after completing a roadshow last week, The Mortgage Society of Finland is set to open order books for sub-benchmark deal.

Covered bond primary volume is expected to slow from the exceptionally busy period seen over the last two weeks, though a number of issuers are still monitoring conditions. In the meantime, market participants will be heading to Vancouver for the European Covered Bond Council’s plenary meeting and Euromoney Conference’s North America Covered Bond Forum.

The belly of the covered bond curve is soft with offers easy to find. Traders are hopeful that spreads will stabilise after next week’s slew of issuance but confidence is lacking. Yet there are pockets of performance if you look hard enough.

Covered bonds issued by Swedish Covered Bond Corp and Overseas Chinese Banking Corp on Wednesday were thinly oversubscribed though investor preference was clearly slanted towards the most defensive five year Swedish offering.

The head of covered bond origination at Société Générale is expected to leave the bank this week and is also relinquishing his role as deputy chairman of the European Covered Bond Council (ECBC).

Legacy capital securities are proving rich pickings for specialist bank debt investors as institutions work out how to take them out of their funding structure. Meanwhile, covered bond investors are wary about their market.

A trio of covered bonds issued on Tuesday attracted tepid overall demand, even though they were priced much wider than theoretical fair value. Of the three, Axa Bank’s dual tranche offering stood out as the most popular.

Virgin Money could soon appear with a debut covered bond after Fitch and Moody’s assigned top ratings to its €7bn programme with the expectation of a £500m five year soft bullet deal.