Covered Bonds

Covered bond volumes were higher this week than last even as mounting fears of a UK decision to leave the European Union lead to greater volatility and increased execution risk.

Turkish banks are looking to mortgage-backed covered bonds to close asset and liability mismatches and reduce borrowing costs. In the next few years, the asset class will become a cornerstone of their funding plans.

The Swedish covered bond law requiring issuers to hold a minimum overcollateralization ratio of 2% is expected to come into force on June 21.

The Australian lender priced an A$500m five year floating rate covered bond on Wednesday on an oversubscribed order book. Though it was unable to tighten pricing, the final spread was in line with the last five year A$ benchmark issued by CIBC.

The Danish covered bond issuer extended its curve and priced a larger deal well inside where its inaugural five year was issued in March and with a fair oversubscription ratio.

FIG spreads have come under pressure this week, with nervousness creeping into the market following new polls on the UK’s referendum on EU membership.

Independent covered bond consultant, Richard Kemmish, responds to the Bundesbank’s discussion paper on covered bond asset encumbrance.

The covered bond market could lose its unblemished track record if the market fragments from a lack of harmonisation, said Moody's.The agency’s report comes amid widespread belief that the EC’s drive to harmonise covered bonds has been put on ice.

An discussion paper commissioned by the German central bank suggests that covered bonds can improve a bank’s profitability, but by encumbering assets, risk is asymmetrically shifted to unsecured debt holders resulting in greater fragility.

The French public sector covered bond issuer returned to the market for the fourth time this year to raise €1bn, with the 0.375% coupon being the lowest ever for a Obligation Foncière due 2025. The transaction was heavily reliant on central bank demand and underperformed after becoming free to trade.

The Cover invites market participants to submit 200 word pitches, or nominations, which will form the basis of shortlists that will be voted on in this year’s annual awards.

The European Central Bank is likely to lower the rate of covered bond purchases over the remainder of this year, according to analysts at Rabobank.