Covered Bonds

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.

A flurry of issuance from banks has led to a positive outlook for the Italian covered bond market, as financial institutions — old and new — move away from central bank liquidity.

Covered bonds earn a preferential risk weight, even though they are not subject to the same tight standards of transparency and harmonised regulatory frameworks as ABS, said the European Central Bank’s executive board member Yves Mersch on Monday.

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 juicier pick up.

Late on Friday the Bank of Italy published a consultation paper which aims to bring the Italian covered bond framework into line with the fourth iteration of the Capital Requirements Directive (CRD IV), and which could potentially broaden the number of Italian covered bond issuers.

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. 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.

Moody’s announced a positive rating action on CaixaBank on Friday, reflecting declining asset-quality pressures, and an improvement in its earnings. The news comes as its most recent deal has performed well, and amid growing expectations that the worst is behind for the Spanish economy. With the interest rate outlook likely to remain constructive and Cédulas likely to stay technically squeezed, the sector’s performance outlook has not looked this good in years.

Banco Popular Español (BPE) issued the third Cédulas of 2014 and at €1bn, the issuer’s largest covered bond in three years. Though it was by no means the most attractive spread this year it was less than half the average of its previous three deals.

NIBC Bank returned to the covered bond market this week to launch its second conditional pass-through covered bond (CPTCB). The book suggested that the issuer attracted a greater scale of demand from a wider group of buyers than in its first deal. The growing acceptance of this innovative product at a much tighter spread bodes well for future use of the structure.

Berlin Hypothekenbank mandated joint leads on Monday for a euro Pfandbrief and a roadshow to explain its new ownership structure. The mortgage bank will be directly owned by the savings banks and will become an affiliate of Landesbank Berlin, rather than its subsidiary.

Germany’s Hypovereinsbank (HVB) and Bayerische Landesbank (BayernLB) launched Pfandbrief deals of the same size and tenor this week. But with a marginally lower rating, and hence a wider spread, HVB was able to attract a more granular book.

An overhaul of Polish covered bond law will increase issuance, said market participants. The reforms should raise loan-to-value limits, allow soft bullets and mandate minimum overcollateralisation, according to an English translation of the text obtained by GlobalCapital.