Covered Bonds

Caisse Française de Financement Local proved the resilience of the covered bond market on Thursday by printing the first euro deal from a European issuer in three weeks. The defensive three year tenor was exactly what the market needed, according to rival bankers, and paves the way for more short-dated euro issuance.

Westpac’s $800m three year floating rate covered bond, issued on Tuesday, has piqued interest from other covered bond issuers outside Europe, who could be ready to launch deals at short notice.

The Bank of Scotland has issued a consent solicitation requesting a switch from hard bullet to 12 month extendable soft bullet maturities for seven of its benchmark deals.

Piraeus Bank has cancelled its covered bonds which, along with all other Greek covered bonds, are no longer eligible for funding under the European Central Bank’s Emergency Liquidity Assistance facility. The move comes after ECB raised ELA collateral haircuts to a rumoured 45% with a warning that it may cut liquidity off completely two weeks from now.

The proportion of residential mortgages in Spanish Multi-Cédulas (MC) has risen, leading to an improvement in their credit quality, Fitch said on Tuesday.

Markets could be facing a protracted period of uncertainty, as a Greek exit from the euro seems more likely after the “No” vote in Sunday’s Greek referendum. The Eurogroup is expected to hold a summit on Tuesday when it will become clear whether or not there is a political will to do a new deal with Greece. Risk aversion should ultimately favour covered bonds, but borrowers will need to price deals cautiously.

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.