Covered Bonds

The Dutch covered bond market could be poised to expand, after the Finance Ministry published draft proposals that would allow lower rated borrowers to issue bonds and set up programmes backed by small- to medium-sized enterprises. The news comes as NIBC Bank prepares for the return of its conditional pass-through structure, and amid talk that other Dutch issuers are now considering setting up such programmes.

Banco Santander Totta this week returned to the covered bond market after a four year absence, choosing a three year maturity and a spread that ensured it was an easy choice for risk-averse and yield-hungry investors alike. The €1bn deal is likely to replace central bank funding.

The European Banking Authority’s effort to improve transparency on balance sheet encumbrance has come to nothing. The draft guideline, which will be finalised by June, is practically useless because it doesn’t include emergency central bank liquidity, which is the largest and most important source of encumbrance. But that’s probably just as well, for if this disclosure became public knowledge, it would create just the sort of negative feedback loop that brought down the UK’s Northern Rock.

The risk weights for securitization have been halved, again, in the latest version of Solvency II. Naturally the market is pleased to be further out of the regulatory dog house, but the way risk weights (and therefore careers, businesses and economies) can be slashed at the stroke of a pen ought to give pause for thought.

A revaluation of Spanish properties that serve as Cédulas collateral would boost transparency, said Fitch on Thursday. More transparency would improve investors’ ability to analyse cover pools and be positive for the market.

The Dutch covered bond market could be poised to expand, after the Finance Ministry published draft proposals that would allow lower-rated borrowers to issue bonds and set up programmes backed by small to medium sized enterprises. The news comes as NIBC prepares for the return of its conditional pass-through structure and amid talk that other Dutch RMBS issuers are now considering setting up such programmes.

The European Commission outlined its plan to meet the long-term financing needs of the European economy, in a press release on Thursday. The Commission says it wishes to improve the environment for covered bonds which, based a separate draft document, will mean it will consider whether an integrated European covered bond market is possible.

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.