Covered Bonds

South Korea’s Kookmin Bank is looking to return to the covered bond market as early as January, after hiring a bank to arrange a non-deal roadshow.

A year after the European Central Bank started buying covered bonds for its third purchase programme (CBPP3), the pool of investors that buy eurozone covered bonds has dwindled. But this provides a unique opportunity for issuers ineligible for CBPP3. Canadian banks have brought a welcome injection of attractively priced paper that has engaged a broad audience. And with CBPP3 set to continue for at least another year, the outlook for inaugural deals from new countries is promising. Euro issuance from Singapore, Poland and Turkey should soon be offering investors a broad menu of credits, at potentially interesting spread levels.

Kookmin Bank has mandated a lead manager for a US dollar covered bond roadshow. Should a transaction follow in December, it will be the issuer’s second this year following its inaugural legally enshrined deal launched in October.

The French bank opened books for an eight year benchmark on Tuesday. The initial double digit spread looked generous and ensured the first covered bond to be issued in December got off to a strong start.

Gross covered bond supply is expected to reach €185bn globally next year, up about €10bn from 2015 and the highest since 2011, according to analysts at Barclays.

The French covered bond issuer has mandated leads for its second deal of the year and is expected to open books on Tuesday.

House prices have fallen in Singapore in the last two years, but covered bond ratings are highly resilient and have been stressed to price declines many times greater than the price falls seen, said Fitch. Bankers note that Singapore’s property price decline has been deliberately engineered and say it is one of the most regulated markets in the world.

The German government is considering new rules that would govern the regulation of loans for construction and residential properties. Though it is not clear whether the rules will become adopted, analysts at LBBW research say that if they are, they should lead to an improvement in the credit quality of Pfandbriefe.

Swedbank priced the tightest fixed rate senior bond in several months this week, but bail-in uncertainty continues to undermine asset class. Bankers are split on whether issuers can be drawn away from covered bonds, which gave almost free funding for SEB Germany on Tuesday.

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

Bayerische Landesbank issued a well oversubscribed Pfandbrief on Tuesday and priced somewhat tighter, and with a longer maturity, than other recently issued German covered bonds.

Aegon Bank issued its first covered bond on Tuesday, a €750m five year conditional pass through (CPT).