Covered Bonds

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.

The deadline for submitting bids for the European Central Bank’s targeted long term refinancing operations (TLTRO II) is due at the same time as the UK EU referendum result. SEB analysts anticipate borrowing will be higher than the median forecast and think this will help alleviate potential Brexit related spread widening.

Compagnie de Financement Foncier (CFF) has updated its EMTN Obligations Foncières programme documentation to permit issuance of soft bullet covered bonds, bringing its deals into line with most others. The move comes as Germany considers updating its law to allow for soft bullet extensions.

PKO Bank Hipoteczny, Poland’s largest mortgage lender, has issued a well oversubscribed, tightly priced and broadly distributed covered bond, which sets an encouraging prelude for an expected inaugural euro benchmark deal later this year.

When the covered bond purchase programme (CBPP3) began in October 2014, valuations had become severely overstretched, and not long after the purchasing began, the market came under considerable pressure. Valuations are once again looking overstretched across the board but more so in the corporate sector where eurosystem buying has also only just begun.

From a regulatory standpoint the spread level of UK covered bonds suggests a UK exit from the European Union has been priced in. However, given uncertainty over how the process of leaving the Union would be finally completed, it is likely UK bonds will remain unloved.

When the covered bond purchase programme (CBPP3) began in October 2014, valuations had become severely overstretched, and not long after the purchasing began, the market came under considerable pressure. Valuations are once again looking overstretched across the board but more so in the corporate sector where eurosystem buying has also only just begun.

Peripheral covered bond spreads were marked tighter on little volume on Monday, in line with a general improvement in risk appetite across the credit spectrum after a number of polls showed a swing in favour of the UK remaining in the European Union. But with opinion more evenly balanced than ever, the market has probably overreacted.

PKO Bank Hipoteczny, Poland’s largest mortgage lender, has issued its second covered bond since the country’s updated legal framework came into force. The well oversubscribed, tightly priced and broadly distributed deal sets a strong prelude for an expected inaugural euro benchmark later this year.

Capital markets this week finally faced up to the possibility of the UK voting to leave the European Union in next Thursday’s referendum. There was a distinct whiff of panic in European bond markets, after latest polls showed the Leave campaign was not only gaining momentum but establishing a lead, prompting investors to race into safe haven assets such as Bunds and US Treasuries and selling out of bonds of issuers most likely to be affected by Brexit.

Stadshypotek was lucky to raise €1bn of six year funding at 3bp over mid-swaps on Monday, a feat that leads said would not have been possible on Tuesday as markets deteriorated.

Caisse Française de Financement Local (Caffil), the French public sector bank, issued its third Obligation Foncière this week but, while it set a record low coupon, it was heavily reliant on support from the Eurosystem.