Covered Bonds

The European Central Bank’s extra haircuts for covered bond repo, which took effect on Monday, could spur issuers to consider using conditional pass through (CPT) structures. The higher ratings issuers can achieve using CPT structures mean lower haircuts.

Two covered bond issuers from Sweden and Germany launched euro benchmarks on Tuesday. Both transactions were healthily oversubscribed, but with a wider starting spread, Swedish Covered Bond Corporation (SCBC) was able to issue a much larger volume, and tighten pricing during the bookbuild.

WL Bank mandated leads for the second €500m 10 year of 2016 from a German bank this year, and the fifth 10 year overall. Meanwhile, SCBC will follow DNB Boligkreditt with the fourth five year from a bank outside the Eurozone.

Primary covered bond activity is expected to pick up later in the week both in euros and dollars where Kookmin is expected to issue its second legislative deal. The secondary market for covered bonds was steady, if relatively muted, on Monday.

BNP Paribas and Compagnie de Financement Foncier seized the chance to issue euro benchmark covered bonds on Friday after sentiment improved overnight. But with spread widening likely to resume before long, one major investor felt the long 10 year from CFF would fare better than the tightly priced five year from BNPP, even though the CFF deal was only just subscribed.

A large group of investors is determined to reject a buyback offer on billions of euros in soured bonds guaranteed by the Austrian State of Carinthia — an offer that may represent the province's only chance of avoiding an unprecedented bankruptcy. Covered bonds are unaffected.

The European ABS market is rolling on despite wider market volatility, with Obvion releasing what market participants have described as “attractive” price thoughts for its Storm 2016-1 Dutch RMBS deal.

FMS Wertmanagement has launched two separate tender offers on the Irish Stock Exchange for euro, Swiss franc, US and Canadian dollar denominated covered bonds issued by Depfa Bank and Depfa Pfandbrief Bank SA.

Compagnie de Financement Foncier had been expected to open books for a 10 year benchmark on Wednesday, but postponed the deal blaming market conditions. Rival bankers said the long tenor was the wrong choice for the weak market.

Crédit Agricole issued the one and only covered bond of the week on Thursday and showed that it is possible to get a strong outcome in a tough market.

A survey of 35 investors polled by Fitch at the end of last year suggested around two-thirds are switching out of covered bonds to other asset classes.

Crédit Agricole issued the first covered bond of the week on Thursday and showed that it is possible to get a strong outcome despite a tough market, something which eluded Compagnie de Financement Foncier on Wednesday.