Covered Bonds

Tim Skeet, global head of covered bonds at Royal Bank of Scotland speaks to The Cover about his work as chairman of the International Capital Markets Association (ICMA) Asset Management and Investor Council working group on bail-in.

The sterling FRN market picked up on Monday as Barclays was set to price the largest ever covered bond in the domestic currency and Danske Bank was poised to price a benchmark. The two borrowers follow Nordea Eiendomskreditt which attracted robust demand last week.

The European Central Bank’s announcement of a third covered bond purchase programme is destined for failure. The size of the public market for benchmark euro covered bonds stands at about €570bn, suggesting the central bank would be unable to achieve anything close to its €500bn target through covered bonds alone.

A few draft restrictions related to the eligibility of European covered bonds in the liquidity coverage ratio (LCR) have been dropped by the EC suggesting the final wording, due at the end of September, will be supportive for covered bonds. In contrast, covered bonds have been left out in the final wording of US LCR regulations, in line with expectations.

Covered bond issuance is expected to pick up next week, after Caffil and Abbey mandated leads for benchmark euro deals on Friday. Caffil has the potential to price flat or even through mid-swaps in decent size, though Abbey will need to offer a pick-up to eurozone institutions as its bonds are unlikely to be eligible for the European Central Bank’s purchase programme.

The European Central Bank’s announcement of a third covered bond purchase programme is destined for failure. The size of the public market for benchmark covered bonds stands at €570bn, suggesting the central bank would be unable to achieve anything close to its €500bn target through covered bonds alone.

For the first time this year the supply of covered bonds issued in currencies other than the euro led primary flows. Issuers in Australia, Canada and Norway launched benchmarks in dollars and sterling leaving euro issuance trailing.

Scope Ratings, which hired Standard & Poor’s head of German operations as its new chief executive, is hiring staffers for an upcoming Pfandbrief rating platform, and is looking to expand its small cap corporates rating business to cover mid and large cap ratings.

National Australia Bank attracted a high level of European demand for a dollar denominated deal on Tuesday. The unusually broad distribution paid testimony not only to the novel syndication approach, but also the tempting outright yield relative to what would have been seen in euros.

Deutsche Pfandbriefbank (Pbb) reopened the covered bond primary market with a storm this week, printing one of the most oversubscribed German deals of the year. The €500m three year transaction attracted one of the highest proportion of demand from central banks, at 38% and one of the highest proportions of foreign participation, with 53%.

Jens Tolckmitt, chief executive of the Association of German Pfandbrief Banks (vdp) speaks to The Cover about Pfandbrief quality — "striving to be first in class".

ECB has announced another covered bond purchase programme starting in October 2014. The move was dismissed by bankers who said it made limited sense.