Covered Bonds

Ever the optimists, delegates at the Euromoney Covered Bond Congress in Vienna on Thursday attempted to cheer themselves up by highlighting opportunities in new jurisdictions such as Turkey and Singapore and possibly even deals backed by SME or infrastructure loan collateral.

Central banking intervention is set to continue shaping the debt capital markets, no more so than in covered bonds which are the target of the European Central Bank’s third purchase programme. This, along with the targeted long term refinancing operations (TLTRO) and negative deposit rates, will lead to lower supply and a further tightening in spreads. Investors and other key market players met in August to discuss the evolution of the market in a roundtable sponsored by Crédit Agricole CIB.

Andy Jobst, a senior economist in the European department at the International Monetary Fund, told delegates to the ECBC/Euromoney covered bond conference that regulatory obstacles remained high, despite the political mandate for SME covered bonds and ABS.

The Brazilian finance ministry expects to publish its draft covered bond law this week and, by using a presidential order, the legislation could soon be in effect, Matheus Cavallari, deputy secretary for microeconomic policy at the ministry told GlobalCapital. He said two large issuers had already sought regulatory approval to issue covered bonds.

Commerzbank issued a €1bn five year mortgage Pfandbrief on Monday, achieving a spread that was in line with French borrower Compagnie de Financement Foncier (CFF) two weeks ago. The pricing shows that there is no longer a spread between French and German covered bonds, and bankers expect more jurisdictions to catch up soon.

The ECB will refrain from aggressive purchasing during the third covered purchase programme (CBPP3). Ulrich Bindseil, director general of market operations at the European Central Bank, and the lead architect of the programme, told GlobalCapital in an interview last Friday. He said that he expects CBPP3 to lead to tighter spreads which will encourage more issuance.

Ever the optimists, delegates at the Euromoney Covered Bond Congress in Vienna this week attempted to cheer themselves up by highlighting opportunities in new jurisdictions such as Turkey and Singapore and possibly even deals backed by SME or infrastructure loan collateral.

Central banking intervention is set to continue shaping the debt capital markets, no more so than in covered bonds which are the target of the European Central Bank’s third purchase programme. This, along with the targeted long term refinancing operations (TLTRO) and negative deposit rates, will lead to lower supply and a further tightening in spreads.

GlobalCapital: Will issuers outside Europe want to take advantage of a possible gap in European bank supply?

With 340 delegates, more people than ever attended the European Covered Bond Council’s Plenary meeting, held this year in Hotel Savoyen in Vienna. The welcome remark was delivered by Andy Jobst, a senior economist in the European department at the International Monetary Fund (IMF). He spoke about the role of covered bonds in expanding the European Central Bank’s balance sheet and the need for SME financing through securitizations, which regulated investors are not incentivised to buy.

GlobalCapital: When do you think banks will be less focused on improving capital and leaning more towards lending to the real economy?

GlobalCapital: How do you expect negative deposit rates to impact the market?