Covered Bonds

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.

The Cover’s 2014 polling has commenced. There is only one chance to vote, so if you need to preview the questions first please click here.

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.

Moody’s finally got round to taking rating action on over 40 Spanish multi-Cédulas covered bonds on Friday — some two years after putting them on review for downgrade. By biding its time the agency avoided the harsh downgrades to junk many had feared would cause forced selling.

Moody’s upgrade of Portugal bodes well for prospective covered bond upgrades and should help to limit contagion related to the troubled Portuguese lender, Banco Espírito Santo, said bankers.

232 people have responded so far to The Cover’s 2014 awards survey with as many as half being investors. The final results will be revealed in late September, but the preliminary outcome based on the un-weighted vote shows that the margin separating the top institutions and deals is thin in many categories, including prestigious awards such as Best Global House.

Covered bonds are likely to be so well ring-fenced from a regulatory perspective compared to other forms of bank debt that it makes sense to delink the asset class from the rest of the bank credit universe, a major investor told The Cover on Thursday.