Covered Bonds

A handful of euro benchmarks could potentially be launched depending on the Greek referendum result this Sunday and market conditions.

The Cover interviews Colin Chen, Managing Director and Head of Structured Debt Solutions, Treasury and Markets at DBS Bank about the borrower's forthcoming covered bond, how the Central Provident Fund’s priority claim was subordinated, and the Singaporean housing market.

The primary covered bond market was inactive this week, as issuers chose to wait until Greece's referendum is held on Sunday before deciding on whether or not to proceed.

As the technical backdrop looks stronger now than at any time this year, issuers should step up and execute funding plans before the Greece crisis gets any worse.

After a strong start to the year, covered bond issuance has slipped back and is now €12bn below the amount seen in January to July last year. With investors biased to reduce covered bond exposures and Greece paralysing activity, there is a growing probability this year's supply wll fall below 2014's, rather than expand as many had predicted.

As the technical backdrop looks stronger now than at any time this year, issuers should step up and execute funding plans before the Greece crisis gets any worse.

After years of inactivity, Asia will finally get the first legislative covered bonds from South Korea’s Kookmin Bank and a second deal from Singapore is expected this year after DBS. But even though governments are keen on the product, a truly vibrant market may be years away.

The European Commission is expected to publish a consultation paper on covered bonds in the Capital Markets Union in the near future. The paper will not necessarily lead to material changes, unlike last year's EBA report.

After years of inactivity, Asia will finally get the first legislative covered bonds from South Korea’s Kookmin Bank and Singapore’s DBS. But even though governments are keen on the product, the asset class is unlikely to truly blossom in the region.

Northern Rock Asset Management’s (NRAM) tender offer for its remaining covered bonds is set to proceed after it announced on Tuesday that enough investors had registered interest.

Covered bond spreads were marginally wider on Monday amid light volumes. Despite the looming Greek referendum and the country’s potential exit from the euro, the market still seemed to be trading as if Greece and its creditors would find a solution. Meanwhile Kookmin Bank is biding its time before launching Korea's first legally enshrined covered bond.

The Greek government has rejected an austerity plan tied to the next €7.2bn IMF bailout tranche and called for a referendum for July 5 asking its voters to also reject austerity. Kookmin finished roadshowing last week and could soon be ready to issue the country's first legally enshrined covered bond.