Covered Bonds

SP Mortgage Bank got a strong response this week for its first covered bond, partly due to its defensive five year maturity, while Caffil did well to issue a 15 year deal despite soaring volatility.

The European Commission has presented proposals for the treatment of covered bonds in the net stable funding ratio (NSFR) that are more favourable than those outlined by the Basel Committee and may hasten the adoption of soft bullet and conditional pass through structures.

Oversea-Chinese Banking Corporation has established its $10bn covered bond programme, and with a top rating from both Moody’s and Fitch, it is only a matter of time before the bank issues its first covered bond.

Oversea-Chinese Banking Corp has become the last of the three big Singaporean lenders to pave the way for a covered bond, announcing a $10bn programme on Wednesday.

Caffil, the French public sector covered bond borrower, has issued a €500m 15 year public sector Obligations Foncieres. The attractive coupon and concession overcame concerns over the bond’s long tenor, which were heightened following further volatility in the rates market.

The European Commission has presented proposals for the treatment of covered bonds which are more favourable than those outlined by the Basel Committee, and may hasten the adoption of soft bullet and conditional pass-through structures.

SP Mortgage Bank, the newly established Finnish lender, successfully issued its first covered bond on Tuesday. The defensive five year maturity, which has not been seen from a core European issuer in over five months, went a long way to assuaging investors’ broader market anxieties.

Coventry Building Society has mandated leads for a roadshow ahead of a possible €500m seven year. The announcement follows further rates volatility and the withdrawal of most bids in the secondary market.

Discussions at the European Banking Authority’s public covered bond hearing on Friday centred on the triggers required to extend soft bullet or conditional pass through covered bonds. Regulators may need to set further conditions for soft bullet bonds issued by specialist banks.

Though several core covered bond issuers are monitoring the market, rates volatility is likely to keep many investors sidelined next week, unless deals have convincing new issue premiums and short duration. Peripheral markets are likely to stay closed.

Covered bond supply surged to its highest levels in seven months this week, as issuers scrambled to raise funding before the end of the year and costs soar even further.

Issuers and their bankers have been too slow to react to the swift change in sentiment since the US election. Deals this week out of sync with investor demand from BBVA and ANZ proved it.