Covered Bonds

The various constituencies of the covered bond market voted quite differently this year and in some cases the final winning margins were close. See how the market voted for this year’s awards.

Santander Totta took advantage of the paucity of peripheral 10 year covered bond supply, a Portuguese sovereign rating upgrade and buoyant credit conditions to issue a well received €1bn transaction on Tuesday. Meanwhile, PKO Bank signalled its intention to open books soon.

Caffil set final terms of 2bp through mid-swaps for its no-grow €750m trade, this being the tightest spread the issuer has ever achieved for a 10 year trade.

The Cover and GlobalCapital held the annual Covered Bond Awards Dinner on Thursday night at Casa Llotja de Mar in Barcelona, celebrating the best performers in the market.

Risks including regulation, monetary tightening and the rise of the senior preferred asset class are touted as threats to the covered bond market. But participants on the opening panel of the Euromoney/ECBC Covered Bond Congress remained relatively unfazed.

Even though central banks continue to regularly buy up to 40% of covered bonds, borrowers are remarkably stoic about spread prospects even after the European Central Bank’s purchase programme (CBPP3) has ended, delegates at the ECBC/Euromoney covered bond congress heard on Thursday.

The Spanish covered bond legal framework is so vastly different from the rest of the world’s that it is likely to face the most severe challenges in trying to implement a harmonised European covered bond directive, delegates at the European Covered Bond Council’s plenary session heard on Wednesday.

ECBC speakers lauded the global popularity of ‘very trendy’ covered bonds, while general secretary Luca Bertalot evoked Christopher Columbus as a model for the European market.

Mortgage industry bodies are pressing ahead with a pilot scheme to collect data on mortgages on energy-efficient homes, which could eventually help promote issuance of green covered bonds and mortgage-backed securities.

Extendable maturity covered bonds are looked on more favourably by issuers and rating agencies than they used to be. But some think issuers should have limited power to extend maturities at their discretion.

Many covered bond programmes are still falling short of new European Central Bank disclosure requirements. Unless issuers improve the timeliness and content of their disclosures, affected covered bonds could soon become ineligible for ECB repo, which would widen spreads.

The Brazilian Monetary Authority (CMN) has published a covered bond regulatory framework which paves the way for the country’s five largest lenders to press ahead with deals. Though the move is credit positive for banks, they are unlikely to issue in euros in the near term.