Covered Bonds

Issuance of green covered bonds and conditional pass through (CPT) deals is likely to improve next year, and European Secured Notes are expected to receive regulatory support, Moody’s has said in a report on the outlook for covered bonds in 2018.

The Basel Committee on Banking Supervision’s (BCBS) has formally recognised covered bonds for the first time. With the introduction of a global preferential risk weight, supply and demand should be boosted, along with the market’s global expansion to new jurisdictions.

Alpha Bank has structured a newly rated covered bond programme in soft bullet format. The move is in contrast to its Greek peers, which have all recently issued from conditional pass through (CPT) programmes.

The European Commission has published a waiver allowing issuers to collateralise their cover pools with more than 10% mortgage-backed securities. Although the carve-out is theoretically permanent it could well be superseded by a covered bond framework, which is due in the first quarter 2018.

More than 90% of Fitch-rated covered bond programmes have a stable outlook due to the considerable rating cushion between issuers and their covered bonds, or because they are secured on a substantial amount of excess collateral.

LBBW came to the market with its first green bond on Tuesday, hoping to reach new investors. It plans to issue at least one to two benchmark green trades a year in the senior unsecured or covered format.

The covered bond purchase programme (CBPP3) could well contract in December, but the European Central Bank will easily have scope to rebuild its portfolio in January which will support spreads. However, a rise in November's secondary market purchases shows real money investors are taking profits and leaving the asset class, boding poorly for the longer term spread outlook.

Crédit Agricole Cariparma issued a €750m eight year Obbligazioni Bancarie Garantite on Monday at the tightest spread to mid-swaps for an Italian deal since the sovereign credit crisis.

Finland’s Oma Savings Bank found strong demand for a debut covered bond on Monday which, because of its sub-benchmark size, offered a sizeable premium to any other Finnish benchmark.

Royal Bank of Canada not only found good demand in a larger than average size for its five year sterling covered bond on Friday, but also executed the trade at considerable cost advantage compared with dollars and euros.

TSB Bank has issued its first covered bond, and a generous starting spread ensured that the deal attracted the highest oversubscription of any sterling covered bond this year.

Stadshypotek returned to the covered bond market for the third time this year to issue its second seven year at the tightest ever spread to mid-swaps. But the fact leads took so long to decide on the deal size hinted that execution had not gone smoothly.