Covered Bonds

Suncorp-Metway has priced its first covered bond deal since November 2012. The two tranche fixed and floating rate Australian dollar transaction offered an attractive 12bp spread pick up to where the previous covered bond issued by Royal Bank of Canada had been trading.

Toronto Dominion returned to the euro covered bond market for the second time this year, pricing the third seven year from an issuer outside the eurozone this week. The spread TD achieved reflected the importance of regulatory treatment, since better treatment allowed Nationwide to price tighter, and worse treatment forced Commonwealth Bank of Australia to price wider.

Of the national central banks which are buying covered bonds as part of the ECB’s covered bond purchase programme, the Bundesbank has been the most active by a large margin, said two covered bond traders. It is said to have accounted for around a quarter of queries in the secondary market from Monday through to 12pm BST on Wednesday.

Nationwide Building Society’s third covered bond of the year had to offer an attractive new issue premium because there was considerable price sensitivity in the book. The deal illustrates that, despite a technical undersupply of covered bonds, there is a greater balance between supply and demand than perceived, especially for bonds ineligible for the European Central Bank’s purchase programme.

Standard & Poor’s has followed Moody’s in saying that a Swedish proposal to cap new interest only loans at 50% of a property’s value, rather than the 75% maximum in force today, is credit positive. This is because it will lead to a lower mismatch between an issuer’s assets and liabilities, the main source of rating volatility for Swedish issuers.

Commonwealth Bank of Australia (CBA) was set to price Australia’s first euro benchmark covered bond in single digit territory over mid-swaps on Tuesday. The deal, which was announced at short notice and which was slow to build early traction, nevertheless managed to attract new investors, though at 14%, bank demand was disappointing given the bonds are now eligible for their liquidity buffers.

Karlo Fuchs has been appointed as head of covered bonds with immediate effect at Scope Ratings. Fuchs joins from Standard & Poor’s where he had worked for 15 years as a senior director and head of covered bond analysis.

Suncorp-Metway has mandated leads for a five year Australian dollar covered bond, the third in the currency this year and the issuer’s first since November 2012. The deal is expected to be launched this week.

The national central banks of France, Portugal and Spain were reported buying covered bonds issued by banks from their own jurisdictions on Monday, said dealers. The amounts were small and the purchases were price sensitive, they added. Offers in Banca Monte Paschi Siena’s covered bonds were unchanged as its shares came under pressure following reports it may need to raise €1.7bn in fresh capital.

On Friday Fitch put the AA+ rated covered bond programmes of Caffil and CoFF, and the public sector programme of BNP Paribas, on rating watch negative (RWN), following an identical action on the French sovereign earlier last week.

The legal document approving the European Central Bank’s third covered bond purchase programme was published on Friday and takes effect on Saturday, suggesting it would be permitted to start buying covered bonds from Monday. The ECB told The Cover that the legal act was a mere formality and comes as secondary markets have begun to stabilise after volatility earlier this week.

Primary issuance in covered bonds slowed this week with just one deal emerging on Wednesday from Canadian issuer La Caisse Centrale Desjardins du Quebec (CCDQ).