Covered Bonds

Moody’s has favourably adjusted its Asia Pacific covered bond rating assumptions with respect to the likelihood of a payment interruption and the ability of banks to refinance bonds. The changes should lead to less rating volatility and more efficient funding structures.

Periphery bank capital is back on the menu for investors this week, leaving FIG bankers feeling they can bring virtually any product to market for the first time since early January. And thanks to Vakifbank, that now includes Turkish covered bonds.

Vakifbank’s euro Turkish covered bond is good for investors, good for emerging markets borrowers and good for the global economy. But the deal would probably never of happened without the intervention of the European Central Bank.

Vakifbank’s debt euro Turkish covered bond is good for investors, good for emerging markets borrowers and good for the global economy. But the deal would probably never of happened without the intervention of the European Central Bank.

Türkiye Vakiflar Bankasi (Vakifbank) brought a slew of new faces to its investor base when it issued Turkey’s first publicly syndicated euro benchmark covered bond — at an extremely low cost of funding.

The German lender paid no premium for its sub-benchmark sized Pfandbrief, issued on Tuesday.

Compagnie de Financement Foncier took advantage of strong market conditions to issue a long eight year on Monday. Its third covered bond of the year was priced tighter than the previous two and comes as the European Central Bank has become more active in the secondary market.

Covered bonds will help Virgin Money achieve its stated aim of optimising funding costs and extending tenor, especially when taking account of its latest Gosforth RMBS, which gave funding that was both short and more costly compared to covered bonds.

The Italian parliament approved a new law earlier this month that is expected to help finance a broad range of assets. Investors of the secured bonds have recourse to the underlying asset pool as well as an unsecured claim against the issuer.

The soft bullet maturity extension currently being considered for introduction into Germany’s Pfandbriefe law would lower the chance of a payment interruption and could mean issuers need to set aside less collateral to achieve the same rating, said Fitch. Soft bullet bonds would also not be subordinate to hard.

Capital markets were roaring this week, but despite increasing signs of frothiness, the euphoria looks set to persist for some time longer.

Covered bond activity slowed this week with only three deals emerging, half the number seen in the prior week, with Canadian issuers at the fore.