Covered Bonds

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.

Commerzbank returned to the covered bond market on Wednesday to issue its fourth deal of the year. Although order book granularity was less than usual, the €500m long six year was priced tightly and the quality of interest was high.

Caja Rural Navarra pushed ahead with its seven year Cédulas Hipotecarias backed by environmental and social governance assets on Wednesday, even though it knew the market was likely to be unreceptive.

Issuers and their bankers have been too slow to react to the swift change in sentiment since the US election. That oversight became glaringly obvious this week with deals from BBVA and ANZ, but the mood swing was clear well before that.

Australia and New Zealand Bank issued its first euro-denominated covered bond in two years, but with less favourable market conditions investors have become more hesitant, and the deal attracted less than half the demand of one issued two months earlier by its New Zealand subsidiary.

Crédit Agricole took advantage of a relief rally in OATs to issue a €1.5bn covered bond on Tuesday which, by virtue of its seven year tenor, offered a larger pick-up to Bunds than any other maturity.

Covered bond harmonisation is likely to become a more urgent topic for issuers and local regulators after the European Banking Authority published the presentation that it is scheduled to discuss with market participants on Friday.