Covered Bonds

There was stable trading in the covered bond market on Monday, broadly in line with sovereign markets, after the German constitutional court put the European Central Bank’s outright monetary transaction programme in jeopardy last Friday by saying that it violated EU rules. The market was equally unfazed by the admission from Europe’s top regulator that some banks would need to fail.

Credit Suisse’s head of covered bond origination has left the bank, following months of speculation over his position, The Cover understands.

UK issuers moving away from the cheap liquidity of the Bank of England’s Funding for Lending Scheme are likely to opt for covered bonds over RMBS, syndicate bankers told The Cover on Friday. This preference has contributed to a sluggish start to the year for the ABS primary market, with only a trickle of mandates on the horizon.

Peripheral European covered bond programmes are improving in credit quality, with Spain leading the way, according to Moody’s. In particular, Cédulas Territoriales, Spanish covered bonds backed by public sector assets, have benefited from extraordinary state-sponsored liquidity support programmes. The positive news should bolster confidence and help to underpin the year’s rally in peripheral covered bond markets.

The Irish covered bonds issued by Depfa Bank have been attracting strong interest, dealers reported this week, and further convergence to its Irish peers is still possible. There has been speculation that the bank will be wound down, not sold to an unrated entity, as investors might have feared.

Rating downgrades on covered bonds are slowing, and the share of negative covered bond rating outlooks is at its lowest for three years, Standard & Poor’s said this week. It also gave a positive view on SME backed covered bonds and pass-through structures.

Denmark’s efforts to improve its covered bond law and reduce refinancing risk for its banks are steps in the right direction, Standard & Poor’s said on Wednesday. However, refinancing risk will continue to be a problem.

Canadian and Spanish banks could return to the covered bond market soon though only three banks have mandated and undertaken roadshows.

Canadian banks could return to the covered bond market soon, encouraged by favourable swap rates, bankers told The Cover on Thursday. Meanwhile, the markets awaited the outcome of the European Central Bank meeting, which was expected to leave rates unchanged.

Covered bond rating downgrades are slowing down and the share of negative covered bond rating outlooks is at its lowest for three years, Standard & Poor’s said this week. It also gave a positive view on SME backed covered bonds and pass through structures.

Covered bond bankers reported further buying in the short end of the curve on Wednesday but some questioned the sustainability of the correction and said sentiment could soon turn negative. Thursday’s European Central Bank meeting and Friday’s US Non-Farm Payroll numbers will set the tone for the primary market and issuance hopes for next week.

Denmark’s efforts to improve its covered bond law and reduce refinancing risk for its banks is a step in the right direction, Standard & Poor’s said on Wednesday. However, refinancing risk will continue to be a problem.