Covered Bonds

The French government is expected to unveil a draft amendment to its covered bond laws, aligning the Société de Crédit Foncier (SCF) and Société de Financement de l’Habitat (SFH) frameworks, which should mainly benefit Axa Bank.

Investors derided the covered bond conditional pass-through (CPT) mechanism at the CEE Covered Bond Forum held this week in London. They said the structure had been mispriced and would give regulators a strong disincentive to intervene on behalf of noteholders.

Philip Bennett, chief operating officer at the European Bank for Reconstruction and Development (EBRD), said that 2016 was “finally” the year that progress would be seen in the nascent central and eastern European covered bond market.

DG Hyp and Deutsche Hypo launched the only two benchmark covered bonds of the week, and though both deals were priced tightly, they attracted a lot of demand.

TSB Bank is planning to hit the market with its second UK prime RMBS deal, following its first quarter results which showed strong growth in its mortgage lending.

Germany’s WL Bank has tapped an ultra-long dated covered bond by €250m, following a similarly sized tap, also at the long-end of the curve, undertaken by Caffil earlier this week.

BRRD does not specifically link covered bonds to a particular resolution strategy. This uncertainty is less of a concern for large systemic banks, but because smaller failing banks are less likely to be resolved, their covered bonds are at higher risk of default, said Moody’s.

The European Mortgage Federation-European Covered Bond Council (EMF-ECBC) on Wednesday responded to the European Banking Authority's (EBA) December report on the Net Stable Funding Ratio and has requested special treatment for covered bond structures where the matching principle is enshrined in law.

DG Hyp priced the tightest and most oversubscribed German 10 year covered bond of the year on Wednesday. The strong result pays testimony to constructive covered bond sentiment which is being driven by prospective supply scarcity and relative value to government bonds.

Philip Bennett, chief operating officer at the European Bank for Reconstruction and Development (EBRD), said that 2016 was “finally” the year that progress would be seen in the nascent central and eastern European covered bond market.

Deutsche Hypo was set to price a larger than usual Pfandbrief on Tuesday, and despite paying a paltry new issue concession, the transaction look sets to be one of the most oversubscribed German deals of this size in 2016.

Deutsche Hypo mandated leads for an Aa1-rated euro-denominated eight year, only the second German covered bond in that tenor this year.