Covered Bonds

Global political upheaval and rising dollar interest rates are likely to make 2017 a year of brief issuance windows in covered bonds. GlobalCapital gauged the views of a number of funding heads and senior bankers on their approach to the market for the year ahead.

Deutsche Bank’s Spanish subsidiary kept its commitment to issue around €2bn of Cédulas a year and on Wednesday launched a well-oversubscribed €1bn five year, even though the cost was much higher than the European Central Bank’s Targeted Long Term Refinancing Operation.

There is too much diversity in covered bond legal and supervisory frameworks to justify special regulatory treatment of all regimes and programmes, said Christian Moor, a policy adviser with the European Banking Authority, at the AFME and VDP covered bond conference in Berlin.

The covered bond market remained in good shape in the immediate aftermath of the European Central Bank’s policy meeting on Thursday. Even though it had signalled an intention to reduce the amount of monthly purchases next year, peripheral bonds were tighter on the day.

Deutsche Bank’s Spanish subsidiary kept its commitment to issue around €2bn Cédulas per annum and on Wednesday issued a well-oversubscribed €1bn five year, even though the cost was much higher than the European Central Bank’s Term Long Term Refinancing Operation.

The focus was firmly on Italy this week. Despite the government’s failure to secure support for constitutional reform and the resignation of prime minister Matteo Renzi, financial bonds rallied across the board as shorts were covered and new risk was added.

Global political upheaval and rising dollar interest rates are likely to make 2017 a year of short issuance windows in covered bonds. Global Capital gauged the views of a number of funding heads and senior bankers on their approach to the market for the year ahead.

There is too much diversity in covered bond legal and supervisory frameworks to justify special regulatory treatment of all regimes and programmes, said Christian Moor, a policy advisor with the European Banking Authority, at the Afme and VDP covered bond conference in Berlin.

Covered bond spreads of Banca Monte dei Paschi di Siena widened further on Monday on modest volumes after Sunday’s Italian constitutional referendum and the resignation of prime-minister, Matteo Renzi.

Covered bond issuers and investors are readying themselves for political volatility in 2017 that will create patchy windows of market activity, according to panellists at the Afme/VDP covered bond conference in Berlin.

European Central Bank director general of market operations Ulrich Bindseil, said the central bank’s decision to raise repo haircuts for covered bonds with extendable maturities was purely for risk management purposes and should not be interpreted as a judgemental view of the structures.

National Australia Bank on Wednesday issued its second dollar benchmark of the year and managed to fund it at a tighter level than it could have hoped for in euros. However, the more conspicuous funding advantage for borrowers lies in sterling covered bonds.