Covered Bonds

Goldman Sachs is selling a bond backed by a wide variety other assets, but fusing it with covered bond technology in a product that aims to put distance between it and the tainted collateralised debt obligations of the pre-crisis era. Investors in the triple A product will have recourse to a pool of fixed income assets that are valued and resized daily, as well as a claim on Goldman and Mitsui Sumitomo Insurance Group. The structure, which offers Goldman a way to fund its long term assets, could potentially be used by other banks that don’t originate consumer assets.

The covered bond market had one of its busiest weeks this year as six borrowers from five countries raised €5bn. With outright yields continuing to decline, and investors short of duration and scrambling to hit return targets, supply was slanted to the long end. Credit conditions are likely to remain strong in the week ahead and with net negative supply set to increase, covered bonds will remain a sellers’ market.

Westpac New Zealand issued the first legally enshrined covered bond from the country in euros this week in a move that is likely to have been closely followed by several other Kiwi issuers that will now be looking to emulate its extraordinary success.

The covered bond market had one of its busiest weeks this year as six borrowers from five countries raised €5bn. With outright yields continuing to decline, and investors scrambling to hit return targets, supply was slanted to the long end, where more yield was on offer. Even so, several deals offered coupons that set new lows.

Nationwide opened books on Wednesday for the first post-crisis UK dual tranche covered bond, and only the second in that format from any jurisdiction this year. The successful outcome may help to establish dual tranche syndication for those issuers looking to raise large amounts of cash without compromising execution.

Michael McCormick is set to join Credit Suisse next month to become head of covered bond origination, following the departure of market veteran Richard Kemmish in February this year.

Credit Suisse has hired a new head of covered bond origination from HSBC. HSBC has promoted John Millward to co-head of covered bonds.

Two or three core issuers have deals lined up for next week, bankers told The Cover on Thursday morning. The market has successfully absorbed the surge in supply following the ECB announcement on June 5, and deals issued just before the ECB have tightening drastically, following the rest of the fixed income market.

Westpac New Zealand paid the tightest spread, the lowest coupon and drew one of the most granular order books for one of the largest ever covered bonds from the region. Jim Reardon, who is head of funding at the bank, told The Cover on Thursday that the success of the deal was driven by the new legislative framework — a fact that other New Zealand issuers will want to take advantage of.

Nationwide opened books on Wednesday for the first post-crisis UK dual tranche covered transaction, and only the second from any jurisdiction this year. The success of the deal may establish dual tranche syndication as a benchmark for those issuers looking to raise size without compromising execution.

The European Banking Authority’s effort to harmonise covered bond frameworks by defining best practice on behalf of the European Systemic Risk Board may prove to be pointless, or even impossible, as anything that that can be said to be best practice in one market isn’t likely to be particularly useful in another.

Germany will not accept the latest iteration of the European Commission’s discussion on the liquidity coverage ratio (LCR) calling for a minimum A- rating for eligibility into the putative class 1B. Non EEA issuers of bonds rated AA- or higher may get into level 2A. LCR talks will be extended, but not the implementation date.