Covered Bonds

The Swedish Covered Bond Association (ASCB) says its government has proposed legislation that would require local covered bond issuers to hold a minimum 2% overcollateralization (OC). The move is designed to the exempt covered bonds from certain regulations that would otherwise have prevented banks from using derivatives in their cover pools.

The European Central Bank's covered bond purchase programme is once again regularly taking half or more of primary issuance, with negative repercussions. It should step back.

ING Belgium and Bawag received good receptions for their covered bonds issued this week, in contrast to less spectacular outcomes for deals from Westpac New Zealand and UniCredit.

Banco Popular Español (BPE) and Caja Rural de Castilla-La Mancha (CRCLM) issued Cédulas this week that were barely subscribed and relied heavily on demand from the European Central Bank.

Swedbank and SR Boligkreditt defied tricky market conditions this week to respectively raise €1.25bn and €500m in five year covered bonds.

Market conditions were far from conducive this week, but that didn’t stop nine issuers from raising a collective €7bn, which in several cases was done in spectacular style.

HVB, the German subsidiary of UniCredit, returned to the covered bond market for the third time this year to issue a €500m five year mortgage backed Pfandbrief which, despite offering a double digit new issue premium, was only slightly oversubscribed.

Investors, including the ECB, flocked to ING Belgium’s €1bn six year covered bond on Thursday illustrating that, for the right name and spread, demand can be counted upon. Rival bankers heaped plaudits on the deal given the state of the market, which they described as ‘ugly’.

The European Central Bank has scope to lower covered bond purchases and still hit its overall buying target said analysts at Barclays. Last week, the ECB bought less in the secondary market but made up the shortfall with increased buying in the primary market.

The German based rating agency, Scope, has assigned triple-A ratings to 340 European covered bonds. However from a regulatory standpoint the ratings are equivalent to Single A at the other main agencies, said analysts at Commerzbank.

The European Central Bank's covered bond purchase programme is once again regularly taking half or more of primary issuance, with negative repercussions. It should step back.

Banco Popular Español (BPE) returned to the covered bond market for the third time this year to issue a six year deal on Wednesday. After the relatively weak reception Caja Rural de Castilla-La Mancha (CRCLM) received for its similar six year on Tuesday, BPE did well to raise €750m.