Covered Bonds

Regulations governing maximum loan to value (LTV) ratios on mortgage lending imposed by Finland’s Financial Supervisory Authority that take effect this month are positive, but they will have a limited impact on Finnish covered bonds.

Covered bonds opened wider, in line with a softening in credit markets, but quickly rebounded to being unchanged from Monday’s close, although Commerzbank’s latest deal has outperformed.

The European Central Bank’s rate of covered bond purchasing in June was little changed from May and close to the lowest this year.

Commerzbank issued a well-received €750m eight year covered bond on Monday. The first euro benchmark since June 15 sends a strong signal to other issuers that have funding needs and shows that the sometime precarious funding window is now firmly open.

Chris Fielding, executive director of the UK Regulated Covered Bond Council since 2010, will retire this summer.

The latest Obbligazioni Bancarie Garantite issued by Monte dei Paschi di Siena (MPS) was barely changed on Monday after the bank’s share price sank to new record lows in the wake of news that the European Central Bank had requested a sale of its non-performing loan (NPL) stock.

The UK subsidiary of Santander issued a £500m three year floating rate deal on Friday in an exercise that suggested UK banks still have good access to wholesale funding. The deal comes as several banks line up with euro benchmarks next week, and amid growing signs that a further expansion of quantitative easing is on the way.

Several covered bond borrowers are expected to launch deals next week, breaking a two week hiatus surrounding the UK’s referendum on EU membership on June 23.

Fitch has revamped its covered bond rating rules to reflect differences between national resolution frameworks that could allow covered bond liabilities to be partly bailed-in, in some jurisdictions. Upgrades are likely in low investment grade countries, and downgrades in high investment grade countries.

Several covered bond borrowers are eyeing the market for possible issuance next week from a range of eurozone and non-eurozone countries.

Covered bonds continued to benefit from the general improvement in risk appetite on Wednesday with peripheral and non-core markets seeing the best interest, though volumes are light. UK covereds, in both sterling and euros, also presented good value.

Capital Markets Union, one of the European Commission's most lauded initiatives, is likely to be one of the early casualties of the UK's decision to exit the European Union.