Covered Bonds

The UK subsidiary of Santander issued a £500m three year floating rate deal on Friday in an exercise that suggested UK banks still have good access to wholesale funding. The deal comes as several banks line up with euro benchmarks next week, and amid growing signs that a further expansion of quantitative easing is on the way.

Several covered bond borrowers are expected to launch deals next week, breaking a two week hiatus surrounding the UK’s referendum on EU membership on June 23.

Fitch has revamped its covered bond rating rules to reflect differences between national resolution frameworks that could allow covered bond liabilities to be partly bailed-in, in some jurisdictions. Upgrades are likely in low investment grade countries, and downgrades in high investment grade countries.

Several covered bond borrowers are eyeing the market for possible issuance next week from a range of eurozone and non-eurozone countries.

Covered bonds continued to benefit from the general improvement in risk appetite on Wednesday with peripheral and non-core markets seeing the best interest, though volumes are light. UK covereds, in both sterling and euros, also presented good value.

Capital Markets Union, one of the European Commission's most lauded initiatives, is likely to be one of the early casualties of the UK's decision to exit the European Union.

Covered bond sentiment improved on Tuesday in line with the wider credit market and despite negative rating actions on the UK sovereign. Technical factors are likely to continue to support spreads over the next few weeks. Though weak UK fundamentals could lead to issuer downgrades in the longer term, covered bond ratings are relatively well protected.

In the devastating aftermath of Friday’s UK referendum result, UK covered bonds have been marked wider in contrast to peripheral national champions that have benefitted from some short covering interest at the long end.

Bank investors of Norwegian and Swedish covered bonds will be obliged to hold more capital against their investments from next week. Though this is likely to have implications for a considerable number of noteholders, the absolute change is small and is unlikely to affect demand, said analysts at Danske Bank research.

The covered bond market was almost impassive to the wider credit market turmoil that followed the UK vote on Thursday to leave the European Union, with the primary market likely to restart in early July. But one major investor said the UK's decision will be worse for peripheral economies as it will trigger a lot of uncertainty about the EU as a whole.

The covered bond market reacted stoically to the surprising outcome of the UK’s referendum to leave the European Union with the primary market expected to restart in two weeks.

Investors have agreed to a number of changes to Nationwide Building Society’s covered bond programme. The publication of voting results in full is in line with the European Central Bank’s recommendation — but something that is still rarely seen in the market.