Covered Bonds

Banco Santander Chile has issued a new deal from its covered bond programme, Fitch said on Wednesday.

Depfa ACS covered bonds tightened by 30bp on Thursday morning, after German press reports fuelled speculation that it would not be sold to an unrated buyer, but would remain in the hands of the German government. As Depfa’s bonds have a higher rating than other domestic Irish covered bonds, they have potential to tighten much further, bankers told The Cover on Thursday.

The recent correction lower in Multi-Cédulas following Standard & Poor’s rating downgrades last week has almost run its course. Though there is a slight risk that month-end portfolio re-balancing will provoke further near-term losses, the longer range picture is fundamentally and technically well supported, bankers told The Cover on Wednesday.

There are a few transactions that could potentially be announced at short notice as, despite continuing geopolitical strains, market conditions remain strong, bankers told The Cover on Tuesday. However, with clients away from their desks, overall activity is likely to remain muted.

The European Banking Authority proposed this week that covered bond new issue swaps should receive special treatment, ending months of uncertainty over derivatives proposals that could have delivered a fatal blow to the covered bond market.

Covered bonds are currently exempted from large exposure rules set out in the fourth iteration of the capital requirement directive. But this could change in 2019, if newly released proposals set out by the Basel Committee on Banking Supervision (BCBS) are put into place. Though the restrictions will reduce the appeal of covered bonds, it should not be a problem in practice for most countries except Denmark.

The Swedish Bankers Association has published a letter to the Basel Committee on Banking Supervision which says that the Net Stable Funding Ratio (NSFR) would cause banks to rely less on covered bond funding, and more on alternative sources which are not as stable.

The new Banque de France SME funding vehicle could be used for ECB quantitative easing, says BBVA. The Spanish bank’s research team say that, given the ECB’s new readiness to fund SME assets through QE, the Banque de France programme could be the ideal vehicle to channel these funds.

The European Banking Authority has proposed that covered bond swaps should be exempt from the central clearing proposals set out as part of the European Market Infrastructure Regulation (Emir). In so doing it has provided the market with a fillip, but there is a risk covered bonds will lose appeal if issuers' swap obligations become too onerous to fulfil.

After mandating leads for a roadshow at the end of March, Berlin Hypothekenbank (BHH) opened books on Monday for a €500m seven year Pfandbrief. Though the deal had been widely anticipated, bankers said Ukrainian headline risk could have derailed its timing.

Société Générale returned to the covered bond market on Tuesday after a four month absence to issue the sixth French covered bond deal of the year and the third from France with a 10 year maturity. By limiting the deal size, leads were able to price flat to its curve, and with barely any premium to the French government.

The European Banking Authority proposed this week that covered bond new issue swaps should receive special treatment, ending months of uncertainty over derivatives proposals that could have delivered a fatal blow to the covered bond market.