Covered Bonds

Moody’s has implemented its new rating methodology and upgraded a broad range of covered bonds, some of which get better regulatory treatment.

July is typically a slow month for covered bond issuance, but with the primary market having been on hold for much of May and June, it might for once be the time for issuance.

Covered bonds not eligible for the European Central Bank’s covered bond purchase programme (CBPP3) widened further on Thursday, while the rest of the market was largely unchanged on low volumes. Traders are axed to offer and reluctant to show bids.

Moody’s has been the first agency to recognise the need for a more defined waterfall of senior obligations within a bank’s capital structure and now Fitch is also considering this problem.

Moody’s positive rating action on German and Italian covered bonds will help improve structural demand for selective programmes. However, with Fitch still rating many programmes at a lower level the full benefit will be muted.

Sentiment in core covered bonds is holding in with core European five year paper trading steadily. Peripheral bonds are less well placed and deals not eligible for the European Central Bank’s covered bond purchase programme (CBPP3) are offered in good size.

Spanish covered bond spreads were stable on Monday following the multi-notch rating upgrades Moody’s announced at the end of last week, as developments over Greece’s debt negotiations took centre stage. Though a few selective high beta names attracted real money interest, the overall market was heavy even as some government bonds were 20bp tighter or more.

The Cover’s annual awards for the covered bond market will be held at Casa Llotja de Mar in Barcelona on the evening of September 10. The awards celebrate the most important achievements in our market — as decided by the market.

With the euro-market all but shut for covered bond issuers, Nordic issuers may look to the US market as an alternative, say US bankers.

A 10bp new issue premium was not enough for HSH Nordbank to attract a fully subscribed book for a €500m seven year Pfandbrief issued on Monday. Though it was cheap to the curve, the deal was much more expensive than other higher rated, shorter dated agency debt offered at the same time.

Northern Rock Asset Management (NRAM) has announced plans to redeem its remaining two covered bonds following a successful buyback in March.

Timo Ruotsalainen, head of treasury at Aktia Bank in Finland, speaks to The Cover about the European Central Bank’s covered bond purchase programme, LCR funding and shrinking investor pools.