Covered Bonds

Piraeus Bank has become the third of the four largest Greek banks to update its covered bond programme in what is likely to be a prelude to issuance.

Nykredit, the Danish lender, has improved its loss absorbing capacity and rating outlook with new ‘tier three’ instruments that are expected to replace maturing junior covered bonds.

The Eurosystem purchased fewer covered bonds last week than a week earlier reflecting a slowdown in primary activity twinned with increasing difficulty sourcing bonds in the squeezed secondary market. This has been most conspicuously felt at the long end of core markets where positive yields may soon disappear.

The Basel Committee on Banking Supervision has updated its framework for the regulatory capital treatment of securitization. The reduction in minimum capital requirements for deals that meet “simple, transparent and comparable” (STC) criteria will bring the risk weight into line with covered bonds.

The covered bond primary market was kept busy on Tuesday with two Pfandbriefe issued in euros and dollars at the opposite ends of the curve. Though market conditions are constructive, bankers are concerned that the outlook will not look as pretty after the summer break.

Muenchener Hypothekenbank has mandated leads for a three year dollar-denominated Reg S mortgage-backed covered bond, the second from a German issuer this year.

Only one or two transactions are expected in the first half of this week but with many issuers in blackout supply prospects are set to remain dim exacerbating a technical squeeze.

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Canadian Imperial Bank of Commerce has tapped its three year sterling covered bond at a tighter spread than it was initially priced and in a considerably larger size than the minimum it had planned.

The number of active covered bond borrowers looks set to hit a new record after Moody’s assigned its top rating to the hard bullet mortgage covered bond programme of Austria’s Raiffeisenlandesbank Oberoesterreich (RFLBOB).

Obvion’s €1bn Purple Storm Dutch RMBS deal, which sold the entire capital stack, shows that despite the growth of whole loan portfolio sales, there is still interest in using securitization as a capital relief tool.

Covered bond secondary market volumes saw a small improvement on Thursday, but with limited supply and continued central bank buying, the market is set to become more technically squeezed over summer.