Covered Bonds

Covered bond issuers from Canada, Sweden and Australia gathered together in March as participants in this GlobalCapital/The Cover roundtable to discuss their markets. Borrowers still have plenty of issuance capacity but their plans for supply are likely to remain steady rather than spectacular over the foreseeable future. Issuers are conserving their covered pool collateral in case unsecured access becomes more constrained due to increased market volatility.

Bank of Nova Scotia’s inaugural legislative covered bond is unlikely to offer much room for performance, and isn’t eligible for bank liquidity buffers. At 10bp, the spread is broadly in line with expectations and offers genuine diversification in a hungry market. But at 9bp its secondary market performance is less assured.

The bastion of the covered bond market is imposing greater transparency requirements on issuers, but the greater immediate challenge for banks is smooth deal execution in a stiflingly tight spread environment. Joe McDevitt reports.

With deleveraging nowhere near finished and loan growth in most European banking sectors sluggish, covered bond bankers are struggling to see an end to dwindling supply and tightening spreads. Tom Porter goes in search of anything that could buck the trend.

The closer the EU’s bank resolution rules come, the better for the covered bond market, as it is excluded from any possible bail-in plans. But despite the assurances that covered bond investors will escape a bail-in, nobody knows exactly how (yet). Uncertainty remains over covered bonds and liquidity too, with increasingly strident briefing and counter-briefing on whether to count covered bonds in the top class of regulatory liquidity. Owen Sanderson reports.

The new Danish covered bond law, which comes into effect on April 1, is a more complicated structure where a maturity extension is possible under limited circumstances. Because the new bonds carry a higher risk compared to the existing legacy bonds, issuers looking to sell bonds face increased execution risk. The Cover spoke to various buy and sell-side market participants to gauge their thoughts.

Covered bond issuers from Canada, Sweden and Australia gathered together in March as participants in The Cover’s roundtable to discuss their markets. Borrowers still have plenty of issuance capacity but their plans for supply are likely to remain steady. Australian, Canadian and Swedish covered bond issuers all benefit from solid senior ratings, stable real estate markets and they all present a great diversification tool. And, with a very limited amount of bonds outstanding in euros, investors have plenty of credit line availability.

House prices have risen 300% in the last decade in Norway, an unsustainable trend that is likely to lead to a correction, said Standard & Poor’s on Wednesday. But even if prices fell by 30%, covered bond investors would remain well protected, as the bonds are sufficiently collateralised to hold their top rating.

Commerzbank has decided not to pursue with a second deal of its SME covered bond programme. The issuer’s faster than expected pace of deleveraging has freed up more liquidity than it expected.

There was never much doubt that Banco Santander Totta’s first deal since the bailout of the Portuguese government would be a success. The choice of maturity and alluring spread made it an easy choice for the risk-averse and yield hungry. Totta’s first funding in four years attracted one of the largest oversubscriptions and most granular books for a deal of its size.

South Korea and Singapore will extend the covered bond market’s global reach this year, with deals from both countries expected in the first half. Korea, having enacted a covered bond law, seems to offer greater potential for issuance than Singapore.

Sweden’s Stadshypotek returned to the covered bond market on Monday to price the sixth five year benchmark in euros issued in March and the 19th in that tenor issued so far in 2014. Aside from robust demand from banks in the five year area, the Swedish issuer takes advantage of a favourable currency basis swap that was identified two weeks ago by its Swedish peer, Länsförsäkringar Hypotek.