Covered Bonds

A trio of issuers from Finland and Sweden raised €3.5bn of funding in the covered bond market this week with strong receptions and limited spread concessions.

Monte dei Paschi di Siena (MPS) issued a €1bn 10 year Obbligazioni Bancarie Garantite (OBG) this week. The deal came with a 2.125% coupon, the highest of any covered bond sold this year.

La Caisse Centrale Desjardins du Quebec (CCDJ) issued a €1bn five year covered bond on Thursday which offered the widest spread for a Canadian bank this year, but with little new issue premium.

Monte dei Paschi di Siena (MPS) issued a €1bn 10 year Obbligazioni Bancarie Garantite on a comfortably oversubscribed book on Thursday, paying investors a rare triple digit spread, a coupon of over 2% and a 65bp spread over BTPs. With the European Central Bank expected to cut the deposit rate in December, carry trades are once again back in vogue.

BNP Paribas has appointed Rupert Lewis head of European bond syndicate.

Danske Bank’s Finnish branch returned to the covered bond market for the first time since 2012 with a five year benchmark on Thursday. The €1bn deal offered a healthy new issue premium, and leads built a reasonable book, despite competition from cheaper alternatives in the market.

Asia’s nascent covered bond market welcomed Korea Housing Finance Corp’s first transaction in more than two years on November 12. Thanks to strong support from US and European investors, books built strongly and allowed the issuer to price inside its fair value.

The Dutch bank has mandated leads to roadshow its first covered bond. At the same time Fitch and Standard and Poor’s have both published presale reports and assigned triple A ratings for the conditional pass through (CPT structure.

The European Commission’s (EC) consultation on covered bond harmonisation may have far reaching consequences. But ultimately, since the market never suffered from an accepted problem reform could be minimal and slow to come about, said Standard and Poor’s.

A far lower proportion of investors plan on reduce their covered bond portfolios next year compared to this year according to a survey conducted by Société Générale. Most of those asked expect the European Central Bank’s purchase programme (CBPP3) to be extended, and with spreads likely to remain tight, over half plan on moving down the capital structure.

Danske Bank in Finland, formally known as Sampo Housing Loan Bank, has mandated leads for its first covered bond since September 2012. Meanwhile, La Caisse Centrale Desjardins du Quebec (CCDJ) has also mandated.

The European Central Bank’s purchasing programme is having an unwelcome impact on covered bonds, but the market will remain an intrinsic component of bank financing, and will evolve with new products and structures.