Covered Bonds

The long end of the French, Belgian and Dutch covered bond market is effectively closed for primary issuance because the rout in government bonds has made them too expensive. But bankers are hopeful that, with careful consideration of tenor and pricing, benchmark issuance should eventually return in shorter tenors, though probably not until June.

Kreissparkasse Koeln (KSK Koeln) has named lead managers for an eight year covered bond. The bank has issued two previous covered bonds, but this is the first time it is targeting investors outside of the German savings bank network. The deal is expected in the near future.

Moody's recent negative rating action on Pfandbriefbank, Hypo Vorarlberg, Hypo Tirol and Hypo Noe has failed to have any impact on their covered bonds. After coming under severe pressure three weeks ago most Austrian covered bonds have rebounded beyond levels that were seen just before negative headlines first appeared. But Komunalbank’s euro deals have not and could still perform.

Sparkasse Koelnbonn is meeting investors from May 18 for what is becoming its annual €500m bond issue. While the deal will only go live subject to investor feedback and market conditions, bankers are expecting a five to seven year transaction the week after next.

Ålandsbanken is lining up to price a €250m covered bond and is meeting investors in Europe from May 5 – 12. This will be the Finnish bank’s largest covered bond to date.

Bernd Loder has resigned from Barclays where he had worked as a director on its sovereign, supranational and agency syndicate desk in London.

The sharp rise in Bund yields has caused huge mark-to-market losses, effectively wiping out the lifetime coupon payments of any seven to 10 year fixed rate covered bonds bought in recent weeks. Markets appear to have temporarily stabilised, but underlying uncertainty may temper demand for fixed rate bonds suggesting the floating rate market could offer a better alternative.

Covered bond bankers and investors reacted with scepticism to the European Covered Bond Council (ECBC)’s proposed new dual-recourse bond structure. The lack of standardisation across SME reporting means that using them in the collateral pool will be problematic. In addition, even if these concerns are ironed out, issuers will have to pay up for the product, something which makes little sense in such a low cost environment.

The European Covered Bond Council (ECBC) has proposed a new dual-recourse bond structure to meet the European Commission’s plan for a Capital Markets Union.

Bankers are preparing the ground for the first Turkish covered bond with Akbank and Garanti Bank lining up for issuance. Pricing for both will be wide of the sovereign and the banks are preparing extensive investor roadshows. While funding officials are confident that the bonds will sell well, syndicate bankers question whether they will find a substantial buyer base.

Swedbank returned to covered bonds on Wednesday for its third funding exercise of the year, deciding to launch in Reg S format for its first dollar benchmark of the year instead of using its 144A programme. The decision came as the euro rates markets suffered a further bout of intraday volatility following last week’s instability.

More covered issuers could follow Swedbank into Reg S dollars, after the Swedish bank showed on Wednesday it was possible to get the same execution for a Reg S dollar benchmark as for a 144A covered bond.