Covered Bonds

Tier one covered bonds — those from national champion issuers — in Europe’s periphery are cheap to equivalent senior unsecured notes and with the market in short supply further outperformance is likely. Regulation on the Liquidity Coverage Ratio, declining issuance volumes and a further injection of central bank liquidity should fuel the move. But with the US rate cycle set to turn, the longer term picture is more unsettling.

Nykredit Realkredit opened the Danish auction season on Monday with the sale of Dkr800m of two year covered bonds and Dkr7bn of one year bonds that are structured with a maturity extension trigger. Despite the triggers, the one year portion was oversubscribed multiple times and priced a long way inside swaps which Nykredit was very satisfied with.

Fitch upgraded 13 multi-Cédulas (MC) bonds on Friday saying their exclusion from the bank recovery and resolution directive (BRRD) and an improvement in credit quality was behind the decision. The upgrades have taken most deals into single-A territory, which should be a boost to the sector. However, the move serves to highlight the rating agencies' divergent opinions.

Martin Nijboer, head of securitizations at ING Bank, has explained why his bank has set up a new soft bullet covered bond programme, which received approval this week from the Dutch Authority for the Financial Markets (AFM).

Poland’s MBank Hipoteczny has issued its fifth and sixth covered bond deals of the year, the largest issues denominated in Polish zloty in the asset class.

The Reserve Bank of New Zealand has given regulatory approval for ASB Bank, ANZ New Zealand, Bank of New Zealand and Kiwibank to issue their first legally compliant covered bond deals. The quartet should expect to emulate the success of Westpac New Zealand, which got a superb response for its legally compliant debut issued in June.

The Monetary Authority of Singapore (MAS) is set to follow the Basel purist line in its bank liquidity rules rather than following the European Union in easing the rules to help the covered bond market.

Covered bonds are expected to tighten, as the fall in outright yields and expectations of lower supply boost sentiment. On Thursday, dealers reported decent buying of peripheral bonds, and specifically Irish deals which were buoyed on speculation that a sovereign rating upgrade was on the way.

German Pfandbrief issuers have been obliged to publish loan to value (LTV) ratios for their cover pools in the wake of an amendment to the Pfandbrief Act. The ratios are low and give the impression of low risk but the idiosyncratic way they are calculated means the data is of limited use.

German Pfandbrief issuers have been obliged to publish loan to value ratios for their cover pools from the second quarter, in the wake of an amendment to the Pfandbrief Act. Loan-to-value (LTV) levels are generally low by international standards, but such comparison would be misleading given German idiosyncrasies, said DZ Bank and Commerzbank analysts.

Poland’s MBank Hipoteczny has issued its fifth and sixth covered bond deals of the year which combined to form the largest ever issues denominated in Polish zloty. The deal will benefit from the new Polish covered bond law, which should be implemented in January 2015 and which is likely to offer a considerable rating uplift. That prospect boosted demand allowing the issuer to increase the deal size by more than double.

The Monetary Authority of Singapore (MAS) has published feedback to a consultation on Basel III liquidity rules, in which it confirms that its interpretation of the rules will be closely in line with the original international proposals published in December 2010. Covered bonds are expected to be eligible for inclusion as a level 2A asset.