Covered Bonds

DNB Boligkreditt got the Nordic covered bond market off to a blistering start on Wednesday with a €2bn five year deal that leads were able to tighten by 5bp from initial guidance.

With yields set to rise and spreads likely to widen, covered bond issuers should waste no time in getting ahead on 2017’s funding plans and doing the more difficult trades first.

Four covered bond issuers returned to the market on Tuesday with the first deals of 2017. Two €1.5bn 10 year transactions showed that borrowers are prioritising the tougher, longer duration deals and, while conditions permit, issuing in large size.

Covered bonds will continue to be a crucial instrument in any bank treasurer’s funding tool kit in 2017. However, the more necessary focus will be on bail-inable senior unsecured funding. Bill Thornhill reports.

At around €10bn Canadian banks are expected to issue the highest net volume of euro-denominated covered bonds in 2017. And, given high dollar redemptions, a favourable cross-currency swap and an active mortgage market, supply could even beat expectations.

Germany is likely to lead gross supply of covered bonds next year, and many analysts are forecasting it will see its first proper net increase in years. Even so, the market is likely to remain well supported.

The European Banking Authority has published final recommendations that set out the details of its three step approach to harmonising covered bonds across Europe.

The technical outlook for French covered bonds is likely to support spreads, but this could be undermined by a more precarious political backdrop as elections draw near.

As well as creating the legal conditions to allow the issuance of senior non-preferred debt, France’s Sapin II legislation brought in changes that will further harmonise the treatment of French Société de Crédit Foncier (SCF) and Sociétés de Financement de l’Habitat (SFH) covered bond structures.

Pfandbriefbank Schweizerischer Hypothekarinstitute tapped two Swiss covered bonds on Tuesday, in what was likely the final trades of the year. The shorter 10 year Pfandbrief tenor offered a 0.29% yield, an early Christmas present to investors forced far along the curve throughout the year.

The covered bond market is expected to shrink by around €12bn in 2017, according to analysts at BBVA.

Eight heads of funding and two DCM heads spoke to GlobalCapital about covered bonds and regulatory funding, the impact of the Term Long Term Refinancing Operation, the prospective end to the covered bond purchase programme and likelihood of limited funding windows next year.