Covered Bonds

Covered bond issuers that have yet to execute strategic funding plans for the first half of this year are expected to issue soon, especially those emerging from blackout.

Covered bond spreads are set to head tighter, though the risk of a repricing has kept real money investors more focussed on non-Eurozone bonds. Peripheral markets are considered most vulnerable to a repricing but still offer tremendous value against the corporate sector.

Crédit Mutuel Arkéa (CMA) is demanding to be split from its parent group, Conféderation Nationale du Crédit Mutuel (CNCM). Despite a likely downgrade of its senior ratings, the covered bond ratings are well protected, said analysts at LBBW. And in the present market environment, spreads are unlikely to be affected, said bankers.

The European Central Bank's Targeted Longer-Term Refinancing Operation (TLTRO) is unlikely to affect covered bond supply by much this year, as the all-in cost of covered bond funding is likely to be cheaper for many issuers, say Crédit Agricole analysts.

LBBW, OP Mortgage Bank and Mortgage Bank of Finland took little time to sell their benchmark euro deals this week.

The Targeted Long Term Refinancing Operation had been expected to lower primary activity, and though it seems likely peripheral supply will be hit, the overall level this year is expected to be only marginally less than originally expected, said Crédit Agricole covered bond research analysts.

Stadshypotek’s newly set up third cover pool, which can be secured by Finnish residential and public sector loans, has been rated Aaa by Moody’s.

After getting agreement to switch the maturity structure of six deals, the French bank received the consent of noteholders to switch the maturity of a seventh covered bond from hard to soft bullet at an adjourned meeting this week.

The European Commission's February 2018 deadline for the privatisation of Germany's HSH Nordbank is ambitious and challenging, said Fitch. Some bankers believe an orderly wind down of HSH could be in the best interests of covered bond holders.

May is usually a quiet month for covered bonds but this year may be different. The lead up to the UK referendum on the EU is likely to be accompanied by increased market volatility, and banks with funding plans to be executed before August may choose to move this month.

The covered bond market has had a good run so far this year, particularly at the long end of the curve. But with a number of potentially negative events on the horizon, risk adjusted returns may become more attractive at the short end, said analysts at DZ Bank.

LBBW, OP Mortgage Bank and The Mortgage Bank of Finland took little time to sell their benchmark euro deals as, despite the relatively meagre yields on offer, the bonds offered a substantial spreads compared to negative yielding German government bonds.