Covered Bonds

Berlin Hyp issued the first negative yielding covered bond this week, giving investors a sign of things to come as financial institutions prepare for another round of monetary policy stimulus from the European Central Bank.

Berlin Hyp (BHH) issued the first negative yielding fixed rate euro covered bond on Tuesday, days before the European Central Bank is expected to lower the discount rate into even more negative territory.

BBVA returned to the covered bond market for its first deal since November 2015, pricing a well oversubscribed €1.25bn seven year with barely any new issue concession and a long way through the Kingdom of Spain’s spread. The transaction followed one from Toronto Dominion, which on Monday became the first Canadian bank to issue in the US dollar covered bond market this year.

After over a month with no French supply, Caffil and Compagnie de Financement Foncier returned to the primary market on Monday, respectively launching a tap and a new benchmark which both met with a strong reception.

Berlin Hyp (BHH) has mandated leads for a three year covered bond that could be the first to have a negative yield.

After losing its Moody’s rating in November 2015, KA Finanz’s covered bonds received a new AA- rating from Standard & Poor’s last Friday and were indicated about 5bp tighter on Monday morning. The bonds are now likely to receive better regulatory treatment, though collateral transparency could be a problem, said research analysts at Commerzbank on Monday.

Nordea issued a notice on Friday seeking the consent of covered bond investors to agree to the terms of a deed poll and a new guarantee mechanism that will align its Finnish covered bond programme with its Danish, Norwegian and Swedish programmes. Moody’s says the proposal will not affect the credit rating.

Euro covered bond supply is up by more than 60% compared to this time last year, and with several new issuers emerging this year, last year’s record should be broken. But with the European Central Bank meeting due next week and quarter-end balance sheet considerations coming into play, activity is likely to slow in the weeks ahead.

United Overseas Bank sold a landmark transaction this week, printing the first euro-denominated covered bond from Asia, and plans to become a frequent issuer in the market.

Around 250 delegates attended the 10th LBBW European covered bond forum in Mainz on Thursday. Although the low yield environment is making life difficult for asset managers, relative value is returning and real money buyers are slowly coming back.

United Overseas Bank sold a landmark transaction this week, printing the first euro-denominated covered bond from Asia, and plans to become a frequent issuer in the market.

The primary market looked less stable on Thursday as a seven year euro deal from Bank of Nova Scotia and a sterling deal from Canadian Imperial Bank of Commerce were slow to build and barely oversubscribed. However, a competing euro seven year from Bankia found strong demand.