Covered Bonds

Fitch and Moody’s have interpreted Spain’s new bankruptcy regime differently, though according to DZ Bank covered bond research analysts, both agencies see elevated credit risk in Spanish cover pools relative to international standards.

Rabobank’s Obvion subsidiary sold nearly €2bn of five year RMBS last Thursday, at a considerable spread pick up to where Dutch pass-through covered bonds from entities with much weaker ratings would be expected to price. The deal, originated by one of the best rated banks in the world and backed by very high quality collateral, suggested that covered bond investors could be missing out by not looking at the RMBS market.

Moody’s published its new covered bond rating methodology on Monday. The rating agency will use a bank’s counterparty risk rating as starting point rather than its senior unsecured rating. As counterparty rating will be the same or higher than the senior rating, the overall impact should be positive.

A partial sale of Kommunalkredit to a new company, KA New, is likely to lead to lower credit ratings for the bank’s Swiss franc-denominated covered bonds. However its euro-denominated covered bonds will remain in the wind down entity, KA Finanz, and should be better protected, said Commerzbank research on Monday.

A partial sale of Kommunalkredit to a new company, KA New, is likely to lead to lower credit ratings for the bank’s Swiss franc-denominated covered bonds. However its euro-denominated covered bonds will remain in the wind down entity, KA Finanz, and should be better protected, said Commerzbank research on Monday.

Rabobank’s Obvion subsidiary sold nearly €2bn of five year RMBS last Thursday, at a considerable spread pick up to where Dutch pass-through covered bonds from entities with much weaker ratings would be expected to price. The deal, originated by one of the best rated banks in the world and backed by very high quality collateral, suggested that covered bond investors could be missing out by not looking at the RMBS market.

Germany’s Deposit Protection Fund (DPF) will provide a guarantee on the exposure that Duesseldorfer Hypothekenbank (DuessHyp) has to Austria’s Heta Asset Resolution, according to a statement published by the German Association of Banks (Bundesverband deutscher Banken) on Sunday.

DBS is on course to become the first covered bond issuer from Singapore, having proposed a unique structure that will overcome the sticky issue of who has first claim on the asset pool. An agreement is close to being struck and the Singaporean lender is looking then to issue a benchmark size offering in either dollars or euros.

The Swedish FSA’s proposals, requiring borrowers to pay down their mortgages to a loan to value of 50%, is credit positive for covered bonds, said analysts at Danske Bank research on Friday. The proposals, which were published on Wednesday, should lead to a decline in household indebtedness and should dampen house prices.

The European Central Bank owns 15% of eligible benchmark covered bonds since its third purchase programme (CBPP3) began. It could end up owning 40%, which could permanently disrupt the market.

Euro covered bond issuance could be poised to moderate next week, though it is still likely that one or two deals could emerge at short notice. Issuers outside Europe are less inclined to bring euro benchmarks as a change in the basis swap with dollars has reduced the difference in the cost of funding.

Issuers across the credit spectrum were seen in covered bonds this week with Münchener Hypothekenbank pricing the tightest 10-year deal ever while Bankia priced a 10 year with one of the widest spreads seen this year.