Covered Bonds

Rates could be hiked before the end of quantitative easing, it is reasonable to expect some Spanish covered bonds to trade in line with some in France, and although additional tier one is expensive to equities there is a sound structural reason for this. Derry Hubbard, global co-head of debt capital markets at Danske Bank, speaks to GlobalCapital about these topics and more.

The European Banking Authority said this week that it is not overly concerned by an increase in banks' asset encumbrance last year and a rise in covered bond encumbrance for the third successive year.

Akbank has sold its first mortgage-backed covered bond. The deal, which will fund green projects, was privately placed with the European Investment Bank.

The Czech Republic has proposed several legal amendments that will bring its existing covered bond regime into line with the European Banking Authority’s best practice guidelines and which, along with similar moves in Slovakia, will help catalyse new covered bond supply from the region.

The European Central Bank’s decision to curtail wind down entities' access to repo liquidity materially increases the risk of a covered bond maturity extension or default, and is not consistent with its mission as lender of last resort or its previously benign approach to the asset class.

Westpac this week followed Canadian Imperial Bank of Commerce in taking advantage of a glut of sterling covered bond liquidity. It issued a sizeable five year sterling covered bond which is expected to provide cheaper funding than the euro or dollar equivalent, boding well for additional supply.

The European Banking Authority (EBA) has questioned whether banks will be able to place large quantities of new debt into the capital markets for the minimum requirement for own funds and eligible liabilities (MREL), with issuance volumes set rise in 2018 and 2019.

Jozef Prokes, fixed income portfolio manager at BlackRock talks to GlobalCapital about the outlook for yields, swaps and the relationship between covered bonds and senior spreads.

Arnaud-Guilhem Lamy, portfolio manager and head of covered bonds at BNP Paribas Asset Management, speaks to GlobalCapital about the outlook for covered bond spreads, monetary policy and the market’s interaction with senior preferred and non-preferred.

The covered bonds issued by European banks that are being wound down are no longer eligible for the covered bond purchase programme (CBPP3) and wind down entities will not be eligible for repo funding from 2022. The measures dovetail with others that will hit covered bonds with extendable maturities, in addition to those retained for repo purposes.

Rates volatility is expected to continue and, with the long end being disproportionately affected, DZ analysts are urging investors to shorten duration.

Bondholders have been left between a rock and a hard place, according to one investor, after Novo Banco published the terms of its liability management exercise (LME) this week.