Covered Bonds

Bankinter repriced the Cédulas market at least 5bp wider, and its own curve by around 15bp wider on Thursday, with a benchmark five year deal. But with the longer term outlook set to improve, the transaction is expected to have tremendous performance potential.

The European Commission’s proposals to harmonise covered bond regulations across Europe could benefit the market — but will have the biggest impact on covered bond issuers from outside Europe.

The European Banking Authority’s report on asset encumbrance, published on Thursday, says that 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 European Commission’s (EC) consultation on covered bond harmonisation is a realistic way forward that should help with the market’s evolution, said analysts on Thursday. The most striking proposal is a regulatory redefinition of a ‘covered bond’ which would be aligned with the Liquidity Coverage Ratio (LCR) and may result in preferential regulatory treatment for conventional deals issued from non-EEA countries.

The beleaguered Austrian lender has announced the completion of its partial sale and split into KA New and KA Finanz. The asset pools of both are high quality but the covered bond ratings of KA New look more vulnerable than those of KA Finanz, analysts said.

The supply outlook for the remainder of this year is likely to slow down, and if history serves as any guide, around the same volume of covered bonds will be issued over the fourth quarter as September alone. And since net supply will become more negative and the European Central Bank will probably double secondary market purchases, spreads should tighten.

As a part of its Capital Markets Union (CMU) initiative the European Commission published a covered bond consultation paper on Wednesday. It is seeking feedback on whether the ‘fragmented’ market would benefit from a pan-European legal framework. It is also seeking views on the use of covered bond structures to finance loans to small and medium sized enterprises.

The European Central Bank has not been active in the covered bond secondary market so far this week and spreads have moved wider again, especially in the high beta peripheral credits, dealers told The Cover on Tuesday.

Raiffeisenlandesbank Niederösterreich-Wien AG has mandated leads for a covered bond roadshow to commence in early October.

Banca Carige has appointed leads for a roadshow to market a prospective covered bond deal that does not currently have an investment grade rating from Moody’s.

SCBC returned to the covered bond market on Monday, following Swedbank, which priced a larger deal at a tighter spread in the same tenor last week. The difference in fortunes is simply a function of the market conditions, which were not good last week, but have deteriorated further. Separately, DVB bank is set to price a €250m shipping loan Pfandbrief.

Commonwealth Bank of Australia (CBA) has become the latest bank to get the consent of investors to switch a number of deals from a hard to soft bullet maturity. The probability of a soft bullet extension being triggered should be materially lower from January 2016 when bail-in legislation takes effect, and since soft bullet bonds require a less onerous collateral commitment from issuers, many borrowers should follow suit.