Covered Bonds

The final text of European liquidity rules allows unrated covered bonds into the asset buffers banks must hold, in a move that demonstrates the European Commission's willingness to rely less on the credit rating agencies. Unrated covered bonds sit alongside various categories of securitization in the European version of the rules, which allow far more assets to be considered liquid than originally envisaged by the Basel Committee.

Two Frankfurt-based covered bond traders have left Credit Suisse, while two London-based traders will no longer focus on covered bonds, as the Swiss bank folds its separate covered bond market-making operation into investment grade credit trading.

The secondary covered bond market this week found itself caught between a tumultuous peripheral sovereign market and fevered anticipation of the European Central Bank finally wading in to buy bonds. The strong bid, which was seen for periphery names over the last week, had evaporated in the second half of the week as profit taking settled in.

The European Central Bank will face a dilemma when it embarks on its third covered bond purchase programme, which will start soon. Either the central bank buys covered bonds aggressively, something that it has vowed not to do, or it will fail to meet its own target for expanding its balance sheet.

Fitch has given a cautious assessment of recent changes to the Polish covered bond law that are expected to take effect from January 2015. The amendments, which introduce pass-through structures and mandatory liquidity facilities, should have lifted ratings. However, the agency’s downbeat analysis only concedes that the new law will not push ratings down. The opinion is likely to disappoint several borrowers that have been considering euro issuance.

On Thursday the secondary covered market found itself caught between a tumultuous peripheral sovereign market and fevered anticipation of the ECB finally wading into the covered bond market. While traders reported light profit taking in Spanish and Italian names, the strong bid that was seen for periphery names over the last week has evaporated.

JP Morgan is bringing all of its fixed income syndicate teams together under new global co-heads Ryan O’Grady and Bob LoBue.

S&P downgraded a number of Cédulas Hipotecarias and upgraded one Cédulas Territoriales as it begins to implement its sovereign ceiling methodology. The new ratings are now broadly in line with the other agencies and were expected. The agency is expected to announce revisions to Italian covered bond ratings that are also likely to lead to two downgrades.

The European Central Bank will face a dilemma when it embarks on its third covered bond purchase programme, which could start on Wednesday. Either the central bank buys covered bonds aggressively, something that it has vowed not to do, or it will fail to meet its own target for expanding its balance sheet.

La Caisse Centrale Desjardins du Quebec (CCDQ) was back in the euro market on Wednesday with its second five year legislative covered bond of 2014, this time achieving a solid book and pricing at the tight end of guidance. The positive result was in contrast to its disappointing inaugural deal in March. Wednesday’s deal was priced at an expected 2bp pick-up over the stronger Canadian Imperial Bank of Canada’s (CIBC’s) five year trade last Wednesday.

The European Central Bank will face a dilemma when it embarks on its third covered bond purchase programme, which will probably start on Wednesday. Either the central bank buys covered bonds aggressively, something that it has vowed not to do, or it will fail to meet its own target for expanding its balance sheet.

Two Frankfurt-based covered bond traders have left Credit Suisse, while two London-based traders will no longer focus on covered bonds, as the Swiss bank folds its separate covered bond market-making operation in investment grade credit trading.