Covered Bonds

The Austrian restructuring law that wiped out subordinated debt guaranteed by the state of Carinthia was overturned this week by the Austrian constitutional court (VfGH). However, it is not expected to change the positions of subordinated and senior creditors much. Covered bonds should remain secure, said research analysts at LBBW and Erste Bank.

The secondary market has become irrelevant for pricing covered bonds. Spreads only reflect the level at which the eurosystem is willing to buy at, and not the rest of the market. It is the strongest signal yet of the disruption the European Central Bank's purchasing is causing.

Covered bond new issue premiums fell this week as six issuers raised a collective €5.5bn in three currencies with total demand of almost €8bn.

The secondary market is no longer a relevant tool for covered bond price discovery, say bankers, as spreads have come only to reflect the level at which the eurosystem will buy bonds rather than regular investors.

The Lion City has been trying to develop a covered bond market for years but progress has been slow. That's mostly been down to the fact that its banks do not have first access to most of the mortgage loans they lend out. That privilege lies with the country’s pension fund, the Central Provident Fund (CPF).

Singapore can finally lay claim to a covered bond market after its largest bank, DBS, this week printed the country’s first deal in the asset class. The build-up was hardly plain sailing, but that did not stop DBS executing a very successful trade that will serve as a benchmark for its peers, writes Rev Hui.

New issue premiums have fallen slightly and with many transactions going on to perform well in the secondary market, bankers conclude that primary conditions are receptive. However, with August approaching, investors are more likely to be away from their desks and activity is bound to slow.

It has been mooted for years but investors are finally getting their first taste of covered bonds out of Singapore with the Lion City’s largest bank DBS opening books to a dollar offering on July 29.

Muenchener Hypothekenbank (MuHyp) has priced one of the tightest covered bonds of the year.

Covered bond new issue premiums fell on Tuesday as four borrowers launched deals worth over €2.5bn in total, on collective demand of about €5bn. LBBW’s second deal of the month was priced 1bp tighter than its last bond, even though it was two years longer. Bankia was set to issue at less than half the concession paid by peripheral borrowers last week, while Bank of Montreal and Bank of Nova Scotia were set to price in line with recent Canadian predecessors.

More than 550 people have so far voted in The Cover’s 2015 covered bond awards, and with two weeks to go, there is still everything to fight for. Three banks are clearly in the running for Best Global House.

The Net Stable Funding Ratio (NSFR) proposed by the Basel Committee on Banking Supervision (BCBS) may hamper the development of covered bonds and restrict long term financing, according to a paper published by the European Mortgage Federation (EMF) and European Covered Bond Council (ECBC) on Monday. This is due to the assumption that deposits are a more stable source funding and because unsecured funding is favoured over secured.