Covered Bonds

The Swedish Financial Supervisory Authority (FI) announced on Thursday that it will introduce higher capital requirements for four major Swedish banks. It also intends to activate a countercyclical capital buffer and has said it will increase the risk weight of mortgages from 15% to 25%, in line with the Riskbank’s recommendation last year.

Depfa ACS covered bonds were unchanged on Thursday as the names of the failed bank’s preferred bidders emerged. The buyer’s strong rating suggests the covered bond rating is safe, and even if a sale is not agreed, the German government’s continued ownership means the rating is protected. As such, the covered bonds which have the highest rating in Ireland, should be trading tighter than all other Irish deals.

The Italian bankers association (ABI) conference kicked off in Milan on Wednesday, where participants discussed the new OBG framework and considered ways to induce SME lending with reference to the newly proposed Obbligazioni Bancarie Collateralizzate framework and the ABS market.

The covered bond market was in good shape on Wednesday as bankers reported renewed interest in peripheral names and the multi-Cédulas sector. The primary market is expected to pick up next week as Scandinavian and German issuers line up.

Cristina Costa has joined Société Générale as senior covered bond analyst.

The European Commission (EC) could be ready to lift the amount of covered bonds that can be used to fill Liquidity Coverage Ratio (LCR) requirements from a maximum of 40%, to a new higher limit of 60%, according to head of the Danish Mortgage Bankers Federation. The outcome could be known within a few days.

Dexia Kommunalbank is expected to return to the market for the first time in three years, following an announcement on Monday that the Pfandbrief issuer will conduct a roadshow starting in two weeks. The marketing exercise follows the publication of its end of year results in which the state-owned entity articulated its orderly wind down plans, which benefit from a large and unused liquidity facility

Credit sentiment is positive, and it seems unlikely that the European Central Bank would take anything other than an accommodative stance at next week’s policy meeting, but bankers are getting cautious that valuations are becoming overstretched, particularly in those markets which have until now been considered safe havens.

Compagnie de Financement Foncier (CFF) came to market with its second Obligation Foncière of the year on Tuesday, matching the previous deal’s €1bn size — but this time in a 10 year maturity, rather than five year tenor.

Bank of Montreal became the sixth Canadian bank to issue legislative covered bonds when it sold its first deal in the format on Tuesday. The transaction was priced at the tight end of the range of Canadian deals and encountered some price sensitivity but was still comfortably oversubscribed.

Italian banks' repayments of liquidity drawn under the European Central Bank’s long-term refinancing operation (LTRO) have been slower than in most other European countries, said Fitch on Wednesday. Analysts say Italy’s smaller banks are going to be increasingly incentivised to term out European Central Bank liquidity with publicly syndicated covered bond issuance, but with stress test results due in October, time is running out.

The forthcoming covered bond criteria change from Standard & Poor’s is unlikely to result in a substantial modification in credit ratings, bankers said. Covered bond ratings should improve relative to senior unsecured ratings, but senior unsecured ratings may fall as the rating advantage of sovereign support is removed.