Covered Bonds

National Bank of Greece showed this week that a covered bond does not need to have an investment grade rating to be a success. By implication the product has almost unlimited funding potential for a broad swathe of global issuers, particularly those from the emerging markets, writes Bill Thornhill.

Improved investor confidence in Italy has been conducive to issuance, although some trades remain domestically focused.

The National Bank of Greece’s €750m three year conditional pass through (CPT) covered bond does not include an investor put option. Although the programme allows for put options it was not used in this week’s deal and is unlikely to be used in future deals, according to the head of covered bond structuring at UBS which arranged the transaction.

Korea Housing and Finance Corporation (KHFC) has mandated lead managers to arrange a roadshow for an Aa1 rated five year dollar covered bond.

National Bank of Greece’s ability to attract a high oversubscription for its three year covered bond on Tuesday showed it is on the road to recovery. But without sovereign debt relief, the precarious state of Greece’s government finances will continue to blight the economy and its fragile banks.

National Bank of Greece attracted a diverse and deep pool of demand for its €750m three year covered bond on Tuesday, illustrating its ability to overcome investor concerns over its high non-performing loan ratio and the sustainability of the Greek government’s debt reduction programme.

ASB Finance reaped the rewards of a comprehensive roadshow and strong market conditions to issue its tightest and longest covered bond ever this week.

Caixa Económica Montepio Geral this week attracted strong demand for its first covered bond since 2009 and the first ever Portuguese deal with a conditional pass through (CPT) maturity.

The primary market is likely to remain as active in October as it was in September, but in light of strong conditions and the European Central Bank meeting at the end of the month, volumes are ‘biased to the upside’, according to one banker.

National Bank of Greece (NBG) has appointed leads to market its first covered bond since the Greek sovereign crisis, a transaction which rival bankers believe is assured of success.

Investors piled into a 10 year covered bond from Société Générale this week, even though it was the fifth from a French issuer in the same tenor in the last month. But with issuers incentivised to pre-fund ahead of 2018, some market participants say that investor resistance will be seen before year-end.

The covered bond market has not looked this strong all year, and with the European Central Bank (ECB) widely expected to announce a tapering of asset purchases this month, borrowers are highly motivated to issue in size and duration — a message that BPCE understood loud and clear when it issued a long 10 year on Wednesday.