Covered Bonds

SumitG, a triple recourse programme sponsored and guaranteed by Goldman Sachs Group and Sumitomo Mitsui Trust Bank, will be backed at first entirely by senior tranches of European and Japanese RMBS. Over half of the collateral will be rated triple A, and none of the bonds are below A minus. Despite this the deal gets no rating benefit from the collateral pool.

Royal Bank of Canada priced one of the largest dollar covered bonds on Wednesday and despite pricing at the widest spread this year, the deal achieved better execution than was available in senior unsecured or euro covered bonds. It also showed the limitations of an illiquid secondary market for price discovery purposes, but with the real clearing level now set, others should follow.

The secondary market began to stabilise on Wednesday, with sentiment improving following a rally in subordinated bonds, and covered bonds seeing marginally better central bank buying. Though dealer inventories are high, the improvement in relative value compared to sovereign bonds bodes well for the market’s longer term performance.

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.

Münchener Hypothekenbank (MuHyp) achieved a typically tight spread for its €500m six year mortgage-backed Pfandbrief on Tuesday. But market conditions did not support a return to the heights of their last deal in July, one of the tightest deals to have priced this year.

Goldman Sachs and Sumitomo Mitsui Trust will commence a global marketing exercise to show investors a novel guaranteed secured obligation called SumitG from October 12. The programme offers important differences compared to Figsco, an earlier structure offered by Goldman Sachs that was never issued.

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.