Covered Bonds

Cerberus Capital Management’s launch of a £6.2bn UK RMBS deal — the biggest European ABS sale since the financial crisis — has finally lifted the uncertainty that has been hanging over the UK ABS market since the Granite sale process began a year ago, according to market participants.

As of April 4 the ECB said it would make its holdings of covered bonds under the first, second, and third purchase programmes available for repo lending. Covered bond traders said the facility would help improve liquidity, but they did not think it was a game changer.

ASB Finance opened books on Tuesday for the first New Zealand covered bond in euros this year. The New Zealand market is illiquid so fair value is hard to gauge, but the new issue concession was “juicy,” said a lead.

Canadian Imperial Bank of Commerce has appointed leads to update Australian investors and may issue an Australian dollar-denominated covered bond, the first in over a year.

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.