Covered Bonds

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.

DBS Bank has become the first issuer outside the European Economic Area (EEA) to be granted membership to the Covered Bond Label Foundation (CBLF).

Santander has issued European covered bonds from Spain, Portugal and UK but could soon be about to issue Obligations Foncières from a new French programme. However, the sub benchmark sized deals are likely to be placed with the ECB said bankers.

Italian Banca Monte dei Paschi di Siena S.p.A (Monte) has changed the structure of all its outstanding covered bonds from hard bullet to conditional pass through (CPT). The success of the consent solicitation may encourage others to follow.

Covered bond spreads were tentatively tighter on Friday in the expectation that some sort of deal would be agreed with Greece over the weekend. Parts of the market have repriced and there is scope for selective issuance, but a government bond rally would help.

Polish covered bonds are one step closer and with 90% of members of parliament in support of the new draft, bankers say it is only a matter of time before the proposals become law.

Santander has issued European covered bonds from Spain, Portugal and UK but could soon be about to issue Obligations Foncières from a new French programme.