Covered Bonds

Scope has assigned unsolicited AAA ratings with a stable outlook to 187 Swedish covered bonds with a total value of €130bn. Assigning the ratings could be an attempt to establish Scope’s credibility with the ECB which does not currently recognise the rating agency for repo purposes.

Crédit Mutuel-CIC (CM-CIC) and Banca Popolare di Milano (BPIM) issued 10 year covered bonds into relatively weak market conditions on Wednesday. Because of its larger size and tighter spread the French deal was probably the frailer of the two, and while both issuers met their funding targets in terms of size and spread, neither proved particularly popular.

The Swedish central bank published its second stability report of the year and continues to be concerned over high indebtedness and high house prices, factors which are intrinsically connected to the growth of Sweden’s covered bond market. The report follows recent proposals to tighten repo rules affecting covered bonds, proposals which the Swedish FSA and debt office have said are beyond the remit of the independent central bank.

The Italian bank has mandated leads for a 10 year benchmark and its second deal this year.

Aegon Bank was raised €750m for its debut covered bond. The five year conditional pass through (CPT) offered a fair pick-up to where Dutch national champions would have priced, and the level of other Dutch CPTs, and the issue drew a moderately oversubscribed book.

BayernLB issued a well oversubscribed Pfandbrief on Tuesday and priced somewhat tighter, and with a longer maturity, than other recently issued German covered bonds. The pricing showed that German investors can still just about demonstrate differentiation between credits, despite low yields and tight spreads across the board.

SEB Germany’s three year public sector Pfandbrief issued on Tuesday offered the lowest ever yield for a primary covered bond. But some sort of positive return was absolutely necessary, even if it was as tiny as possible.

The Singapore covered bond market could soon be welcoming a second participant after United Overseas Bank announced a $8bn global covered bond programme this week.

United Overseas Bank in Singapore came one step closer to issuing the country’s second covered bond on Monday when it published its offering circular. At the same time Moody’s published a presale report giving the deal a provisional Aaa rating.

The European Central Bank has announced changes to its collateral rules affecting the use of self- issued retained covered bonds. As a consequence, publicly syndicated issuance should become more attractive, which should lead to an increase covered bond supply, giving the ECB more material for its covered bond purchase programme (CBPP3).

Though market conditions are strong and this week’s supply was easily digested, issuers cannot take anything for granted, as Friday’s public sector deal from Deutsche Pfandbriefbank (PBB) showed. Activity is expected to slow a little next week and the week after, before the market closes for the year.

Deutsche Bank’s Spanish subsidiary issued its first publicly placed Cédulas Hipotecarias on Tuesday, setting a strong foundation for a further €3bn that it hopes to sell.