Covered Bonds

Overseas-Chinese Banking Corporation will become the third issuer from Singapore to set up a covered bond programme, its head of funding confirmed with GlobalCapital’s sister publication The Cover on Tuesday. Though similarly rated to Singapore’s other two issuers, OCBC’s business model is somewhat different.

Three covered bond issuers launched euro benchmarks on Wednesday with the inaugural transaction from United Overseas Bank of Singapore proving the main attraction. Sparebank 1 Boligkreditt and Belfius Bank also launched deals, with strong demand for the Belgian deal allowing the issuer to pay an extraordinarily tight new issue concession of 1bp.

Overseas-Chinese Banking Corporation will become the third issuer from Singapore to set up a covered bond programme, its head of funding confirmed with The Cover on Tuesday. Though similarly rated to Singapore’s other two issuers, OCBC’s business model is somewhat different.

Two inaugural issuers announced preparations for euro benchmarks on Tuesday. Denmark’s BRFkredit is planning to roadshow its first ever euro benchmark and Singapore’s United Overseas Bank has mandated leads for its first covered bond and the first to be issued in euros from Singapore.

Danske issued in a larger size and attracted more orders for its covered bond than Deutsche Bank did for its deal. The outcome was surprising given Deutsche’s rarity and higher quality collateral. But in any case the German issuer did well given that it could have done the deal without any support from the Eurosystem.

Westpac has announced a consent solicitation asking investors to agree to a switch in the maturity structure of six covered bonds from hard to soft bullet with a 12 month extension.

The covered bond primary market began slowly this week with just one quickly syndicated €500m German benchmark from Deutsche Apotheker- und Ärztebank (Dapo) emerging. Despite its measly coupon the deal offered a hefty pick up to Germany. Covered bond supply is expected to improve in the week ahead.

The covered bond purchase programme is scheduled to end in March 2017. However, as maturing bonds will be reinvested, the European Central Bank could end up buying up to €40bn per year just to keep its portfolio from shrinking, according to new analysis from Crédit Agricole CIB research.

The European covered bond market has had to adapt to the distorting influence of the European Central Bank’s Covered Bond Purchase Programme (CBPP3), an unsettled outlook for global credit and ever lower yields. But relative value has improved with widening spreads, and real money investors are starting to return.

The European covered bond market has had to adapt to the distorting influence of the European Central Bank’s Covered Bond Purchase Programme (CBPP3), an unsettled outlook for global credit and ever lower yields. But relative value has improved with widening spreads, and real money investors that once deserted the asset class are starting to return. The combination of slightly less central bank buying, higher net issuance and slightly fewer real money investors, for eurozone bonds in particular, is hardly bullish. But buyers are now ready to jump back into covered bonds, as they see value.

Torsten Elling will not be returning to Barclays, having been on paternity leave since June last year, The Cover understands.

The preferential regulatory treatment that UK covered bonds currently enjoy could deteriorate if the United Kingdom votes to leave the European Union in this June’s referendum, said Allen & Overy. Deals issued this week suggest the market has already priced Brexit risk in.