Covered Bonds

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.

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.