Covered Bonds

European covered bonds have been relatively stable in the secondary market this week, though second tier banks in the periphery widened marginally on light selling on Friday, with Banca Monte dei Paschi di Siena leading the way after posting a higher than expected loss. The move is likely to be short-lived provided the geopolitical backdrop does not worsen.

Issuers expect that covered bond issuance after the summer break will be front-loaded, with a busy September likely to be followed by a quiet fourth quarter.

Moody’s this week got round to taking rating action on over 40 Spanish multi-Cédulas covered bonds on Friday.

French public sector covered bond issuer Caffil is expected to continue outperforming the domestic market following the approval of a French law that limits the litigation risk it was facing.

Covered bond bankers are increasingly fielding calls from mainly German banks who want to know whether their covered bond investments are compliant with Article 129 of the Capital Requirements Directive (CRD). The process has become more challenging recently, because the European Central Bank will no longer provide this information.

Given that covered bonds have been carved out of bank resolution, should they still be considered a part of bank credit? Investors should think about redrawing their credit lines to distinguish between state-supported and bail-in debt.

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Given that covered bonds have been carved out of bank resolution, should they still be considered a part of bank credit? Investors should think about redrawing their credit lines to distinguish between state-supported and bail-in debt.

The Australian market for covered bonds has seen the fastest growth of any jurisdiction over recent years, said Deutsche Bank’s research team on Thursday. This extraordinary growth may reflect the regional banking system's dependency on wholesale funding. But Moody’s was constructive on the covered bond market in a report published on Wednesday, and with bonds likely to become eligible for European bank liquidity buffers, spreads are expected to tighten.

Covered bond bankers are increasingly fielding calls from mainly German banks who want to know whether their covered bond investments are compliant with Article 129 of the Capital Requirements Directive (CRD). The process has become more challenging recently because the European Central Bank will no longer provide this information.

Covered bond issuance after the summer break is expected to be front-loaded, with a busy September likely to be followed by a quiet fourth quarter, a major covered bond issuer told The Cover on Wednesday. Nearly €80bn has been issued this year and a further €50bn could follow.

Banco Espirito Santo’s outstanding covered bond is bid only, and though little flow has been reported, dealers believe the offer is likely to be as much as 100bp tighter. In other news, Caffil’s bonds have performed well over the past month, outperforming the rest of the jurisdiction, partly driven by a new French law that limits the firm's litigation exposure by €66m which will considerably reduce the probability of a covered bond payment disruption.