Covered Bonds

The European Commission wants to harmonise the covered bond market and will assess its preferential regulatory treatment, according to a draft document. Harmonisation of national laws will be almost impossible, bankers told The Cover on Thursday, but collateral transparency standards could be harmonised and collateral eligibility could be more precisely defined.

Credito Emiliano’s €750m five year has earned praise for its tight pricing, but it was demand from outside the eurozone, including from Asia and Switzerland, that suggests Italy’s recovery story is gaining traction.

The European Commission wants to harmonise the covered bond market and will assess its preferential regulatory treatment, according to a draft document. Harmonisation of national laws will be almost impossible, bankers told The Cover on Thursday, but collateral transparency standards could be harmonised and collateral eligibility could be more precisely defined.

Investor appetite has shifted to non-national champions, bankers told The Cover on Wednesday, with the window for issuance wide open for lower rated peripheral banks. A Portuguese issuer could step forward soon, one banker said.

Credito Emiliano’s €750m five year has earned praise for its tight pricing, but it was demand from outside the eurozone, including from Asia and Switzerland, that suggests Italy’s recovery story is gaining traction.

Credito Emiliano priced a covered bond at a double digit margin on Tuesday, the first time in four years that second tier Italian bank has done so. The scale of demand and level of funding illustrated that spreads between peripheral and core markets are reverting to historical norms, and that Spanish borrowers have been shrewd to postpone issuance plans.

Covered bond spreads are so tight that there is almost no scope for secondary performance, bankers have warned. “Core markets are in a zone of low oxygen,” one said on Tuesday, as KBC Bank priced a €750m five year deal, having mandated Deutsche Bank, DZ Bank, ING, KBC and UniCredit as joint lead managers on Monday.

Eika Boligkreditt, formerly Terra Boligkreditt, has named leads for a deal roadshow and Deutsche Kreditbank has named lead for a euro benchmark, while two more covered bond deals could yet be mandated later on Monday for issuance on Tuesday.

The covered bond primary market lived up to supply expectations on Monday as two €1bn five year deals were priced amid talk of a further three to come on Tuesday. BNP Paribas showed the strength of its brand and the market by pricing the tightest French covered bond deal of the year.

Landesbank Hessen-Thüringen (Helaba) opened books for a public sector Pfandbrief due February 2019 on Monday, having announced the mandate last Friday. At €1bn, the deal was twice the size of any other German deal issued this year. It was priced with a generous, though not unusual, new issue premium but attracted the highest oversubscription for a Pfandbrief this year.

Belgium’s KBC Bank and Italy’s Credito Emiliano have added their names to Deutsche Kreditbank and mandated joint leads for deals that should all be launched on Tuesday. Despite the high number of covered bond transactions that will compete for investors’ attention at the same time, the small deal sizes and their diversified appeal should ensure that the trio enjoy a solid reception.

Four covered bond programmes will disappear within weeks and as many as 23 more are set to go in the future, Commerzbank research revealed this week, highlighting the parlous state of the market. New programmes are in development in Asia but these alone are unlikely to compensate for the losses.