Covered Bonds

Caixabank brought the first covered bond deal of the year from Europe’s periphery on Wednesday but its offering appeared to struggle for attention on a busy day in the covered bond market.

A plethora of covered bonds issued in the first week of 2018 met with strong investor demand reflecting the fact that buyers have considerable amounts of cash to put to work.

The European Central Bank’s decision to exclude conditional pass through (CPT) covered bonds issued by non-investment grade issuers from its covered bond purchase programme (CBPP3) will constrain liquidity and credit where they are most needed, and is not necessarily justified by risk considerations.

LBBW and Barclays attracted strong demand for the first euro and sterling covered bond benchmarks of 2018 while ABN, Compagnie de Finacement Foncier (CFF) and Bank of Nova Scotia mandated leads for deals that suggested there would be a typically frenetic start to the year.

Commerzbank is "working on" a replacement for two longstanding FIG syndicate bankers who left the firm just before Christmas.

Danish lenders including Nykredit are set to issue a larger volume of covered bonds than normal this December.

Dutch lenders may account for 35% of the overall Basel III capital shortfall for European banks, even though they make up less than 10% of the region's total exposures and own funds, according to analysts at Rabobank.

Senior bonds subordinated to other senior liabilities will no longer be eligible as collateral when financial institutions borrow from the European Central Bank (ECB), the organisation has announced.

Nykredit found strong demand for its five year floating rate euro denominated tap. Demand for the deal was boosted by the fact that euro denominated Danish bonds with a bullet maturity are issued rarely.

After declining this year, analysts at LBBW research expect covered bond supply will weaken again in 2018 largely driven by a steep fall in redemptions. Their forecast is broadly in line with analysts at Commerzbank and UniCredit, but more pessimistic than forecasts made by analysts at Société Générale, Crédit Agricole and JP Morgan.

Covered bond primary volumes are likely to grow steeply in January, as issuers take advantage of a sizeable amount of cash that investors will want to return to the market because of soaring redemptions.

Policymakers and market participants are divided over a proposal to lower bank capital requirements for green assets, after the European Commission said this week that it was considering new measures to promote sustainable finance.