Covered Bonds

Investors are sitting on plenty of cash but have little opportunity to do anything with it in the covered bond market as supply prospects look set to worsen. But with Bund yields breaking up from a long held range on Thursday and the possibility of the European Central Bank scaling back covered bond purchases, there are likely to be better buying opportunities at hand.

ABN Amro hit the covered bond market on Wednesday for an opportunistic tap of its 20 year, and despite being announced at short notice, the offering drew robust demand.

The European Parliament has approved a report that favours a principles-based approach to harmonising features of the European covered bond market.

Kommunalkredit Austria (KA) found strong demand for its high yielding Pfandbrief this week. It was the bank’s first deal since its was sold by the Austrian state, and the first Austrian covered bond that promotes financing with a social cause.

Some European bank liquidity portfolios are ‘materially non-compliant’ with the recommendations of the Basel Committee on Banking Supervision, because of the inclusion of covered bonds as high quality liquid assets, the BCBS said on Monday.

Crédit Agricole took advantage of last week’s sharp rise in swap rates and concerns that covered bond supply may dry up to issue a tightly priced €500m 10 year on Monday.

The relentless growth in active covered bond issuers was in evidence last week as Danske Bank’s Swedish subsidiary received regulatory approval, Santander Consumer Finance AG tested its newly rated programme, and DZ Bank received a rating for its unique Bank Briefe.

Covered bonds should help improve asset-liability matching for Andorra Banc Agricol Reig (Andbank), said its director of its financial institutions group, Paco Collell.

Order book momentum for the first Australian conditional pass through (CPT) issued by Bank of Queensland (BoQ) was quick to build when the deal was finally launched on Thursday, owing to the “eye-catching” initial spread.

DG Hyp and WL Bank are pushing ahead with merger plans in a move that will create one of the largest Pfandbrief issuers. The merger follows a series of other Pfandbrief mergers, new entrants and wind-downs.

Andorra Banc Agricol Reig S.A. (Andbank) has mandated JP Morgan for a roadshow ahead of its first covered bond. The deal will not fall within a legal covered bond framework.

Part of the selling point of covered bonds is that they are a relatively easy to understand, safe investment. But this has become less true over time, especially in conditional pass through structures. It's time for a more unified approach.