Covered Bonds

The European Commission’s plan to harmonise the covered bond market cannot minimise credit risks between different jurisdictions and prevent market fragmentation, as it hopes.

Royal Bank of Canada has mandated leads for a dollar benchmark covered bond that is likely to price at a substantially wider spread than previous similar deals.

The Bank of Cyprus has got one step closer to issuing its first covered bond benchmark since being recapitalised. The conditional pass through programme got an investment grade rating from Moody’s, which for the first time took a fully de-linked approach.

The European Commission’s plans to harmonise the covered bond market will not minimise credit risks between different jurisdictions. And even though the concept of an overall covered bond framework may be credit positive, a few proposals would be bad for some jurisdictions, said Moody’s.

Following the announcement of a rating upgrade of the Kingdom of Spain by Standard & Poor’s on Friday, several Cédulas programmes are likely to be upgraded. But since no regulatory rating thresholds is likely to be broken, spreads should be unaffected, said Commerzbank analysts on Monday.

September was a good month for Austrian issuers, with Erste Bank, UniCredit and Bawag all issuing benchmark size deals after a six month absence for Austrian issuers. Hypo Tirol are ready to join them, but question marks remain on how conducive the market is for new bonds.

Calls for breathing space have not deterred issuers with Eika Boligkreditt adding its name to the heavy pipeline.

The beleaguered Austrian lender has announced the completion of its partial sale and split into KA New and KA Finanz.

Raiffeisenlandesbank Niederösterreich-Wien and Banca Carige have mandated leads for covered bond roadshows that will start in early October.

The European Banking Authority’s report on asset encumbrance, published on Thursday, says European banks’ encumbrance ratios have been relatively steady overall. But they are still high in countries severely affected by the sovereign debt crisis and should be carefully monitored, the regulator adds.

The covered bond supply outlook for the rest of the year has been revised higher by analysts but will moderate from September’s record pace.

Swedish Covered Bond Corp (SCBC) and Bankinter issued €750m covered bonds this week, but after record issuance, their limp receptions may cause others to postpone funding plans.