Covered Bonds

Caisse Française de Financement Local (Caffil) and Länsförsäkringar Hypotek (LF Hyp) got strong receptions for their covered bonds on Tuesday as investors had plenty of fresh money to put to work at the start of what is likely to be a relatively dry quarter.

KA Finanz, the wind down entity formally known as Kommunalkredit Austria, has signalled its intention to issue covered bonds.

ASB, a New Zealand bank owned by Commonwealth Bank of Australia, is set to issue the first euro denominated covered bond of the year from the country, after mandating leads on Monday.

Lloyds defied mounting concerns over the outcome of this June’s UK referendum on whether to remain in the EU, raising €1.25bn of seven year funding on Monday. At the same time Leeds Building Society announced plans to issue its first deal in euros.

Westpac has obtained investor consent to convert five covered bonds from hard to soft bullet maturities. However, it was unable to obtain the necessary quorum to change the maturity on one dollar benchmark

The number of new covered bond issuers grew to five this year after Standard and Poor’s assigned a preliminary AAA rating to the covered bond programme of The Mortgage Society of Finland.

The US Treasury surprised international capital markets on Friday, introducing a new form of government debt instrument that it is dubbing a “Trump bond”.

Covered bonds have had a great start to 2016, in terms of supply, spread performance, and participation in the market from real money investors, but this trend is unlikely to hold. Central bank action, once again, will corrode the market from both supply and demand sides.

The vitality of the covered bond market was in no doubt over the first quarter of 2016 as volumes reached their highest level in five years.

Covered bonds have had a great start to 2016, in terms of supply, spread performance and participation from real money investors, but this trend is unlikely to hold. Central bank action, once again, will corrode the market in terms of both supply and demand.

Rabobank has announced the sale of a €1bn portfolio of mortgages in a move that has pre-positioned the bank for tougher Basel IV regulations. By the time the rules are in force in Europe though, they may look different, especially for countries that are heavy users of covered bonds.

Bankers have yet to be convinced that the merger between Italy’s Banco Popolare Società Cooperativa (BPSC) and Banca Popolare di Milano (BPIM) will be especially positive, though Moody’s says it is good news. The borrowers recently issued covered bonds have tightened in line with the rest of Italy, but they have not outperformed and still trade wider than reoffer.