Covered Bonds

The European Commission (EC) may come to a compromise solution in regard to how covered bonds are classified in the liquidity coverage requirement (LCR). Banks may be able to invest up to 70% of their liquidity buffers in covered bonds, up from a maximum of 40% in current proposals, said DZ Bank research.

Capital requirement regulations (CRR) governing the level of transparency that must be provided by issuers to investors is not well defined and is being exploited, said LBBW research.

The Bank of Italy has published a consultation paper which aims to bring the Italian covered bond framework governing the issuance of Obbligazioni Bancarie Garantite (OBG) into line with the fourth iteration of the Capital Requirements Directive (CRD IV). This could broaden the number of Italian covered bond issuers.

On Thursday UBS issued its first covered bond since January 2012, capitalising on market momentum created by the Lloyds trade on Wednesday, which was the same size, tenor and rating.

Caisse Francaise de Financement Local (Caffil) mandated and priced a €500m tap of its October 2028 covered bond on Tuesday, doubling the size of the deal to €1bn.

The South Korean cabinet approved the country’s covered bond law on Tuesday, after it was passed by parliament in December 2013. Five issuers with €921bn of assets on their balance sheets could issue up to €70bn of covered bonds after the law comes into effect on April 15.

Aktia Bank launched and priced its second euro covered bond benchmark on Monday, in a deal that exceeded the issuer's pricing and distribution expectations despite investor concerns over Finland’s relationship with Russia.

UniCredit Bank Austria issued its second €500m benchmark and the group’s fourth covered bond of the year on Monday. The long five year transaction took advantage of excess demand that was identified in core covered bond deals that priced the previous week, but offered a much juicier pick-up.

The opportunity to invest in covered bonds that offer a triple digit spread over mid-swaps are few and fast disappearing. It was therefore likely that Banca Monte dei Paschi di Siena, which sold a €1bn seven year bond this week, would attract one of the highest oversubscriptions of any covered bond for a deal of its size.

The tightest and most oversubscribed UK covered bond in three years could signal the start of banks releveraging in Britain and elsewhere in Europe, according to analysts. The €1bn Lloyds Bank deal — the country’s first in euros this year — should also tighten the UK covered curve, particularly with growth rebounding, writes Bill Thornhill.

On Thursday UBS came to market with its first covered bond since January 2012, but the third Swiss deal of the year following Credit Suisse, which issued in January and March. UBS aimed to capitalise on market momentum created by the Lloyds trade on Wednesday which was the same size, tenor and rating.

Covered bonds that can be bought in size and with a triple digit spread over mid swaps are a rare commodity, so it was perhaps unsurprising that Banca Monte dei Paschi di Siena (MPS) attracted one of the highest oversubscriptions of any covered bond of this size this year. But twinned with its recent senior issuance, the deal shows that the bank can easily access to capital markets, which can only help underpin confidence ahead of its capital raise.