Covered Bonds

Rare covered bond issuers from Portugal and Spain made a surprise return to the market this week after long absences with transactions that, under the circumstances, were very well received.

The European Covered Bond Council has restated its support for the concept of a high quality principle-based covered bond framework and warned against altering the preferential regulatory status of the asset class.

Banco Santander Totta did well to raise €1bn of seven year funding on Thursday at a record level through govies, given the damaging ramifications for peripheral Europe that would follow if France’s far left and far right presidential candidates made it through to the second round of voting.

Portugal’s Banco Santander Totta has mandated leads for the first Portuguese covered bond since October 2015.

Banco Sabadell enjoyed a strong reception for its €1bn 10 year Cédulas which was priced on Wednesday, partly reflecting the paucity of Spanish covered bond supply, especially at the long end of the curve.

Banco Sabadell mandated leads on Tuesday for only the second Spanish Cédulas of the year which, by virtue of its rarity, is likely to be warmly received.

UniCredit is seeking investors’ consent to substitute Fitch with Moody’s as credit rater of its conditional pass through covered bond programme. The latter requires an issuer to provide less collateral for a similar rating.

Poland’s largest covered bond issuer and national champion, PKO Bank Hipoteczny, has mandated leads to roadshow a prospective zloty-denominated covered bond benchmark.

The European Banking Authority (EBA) has approved a partial waiver to the Capital Requirements Regulation (CRR) that allows German covered bond issuers to take exposures to a wider range of counterparties but with a lower minimum rating.

Covered bond spreads have kept at tight but stable levels despite renewed selling of French and UK covered bonds on Tuesday. However, there is a growing sense that the market must ultimately move wider.

The European Commission is expected to outline plans for a covered bond framework in June, delegates at the European Covered Bond Council’s (ECBC) plenary session heard last week.

After a successful sale of €250m of seven year covered bonds in January, the Republic of Slovakia’s largest issuer, VUB, is now preparing for a 10 year sale, where it expects to issue €250m covered bonds in an auction on April 20.