Covered Bonds

Compagnie de Financement Foncier (CFF) returned to the covered bond market for the first time in over a year on Tuesday, with its newly restructured collateral pool, to issue a €1bn five year Obligations Foncières. The textbook syndication attracted a high quality book and, despite being tight to the issuer’s curve, offered good relative value, as well as benefitting from scarcity value given CFF’s long absence.

La Caisse Centrale Desjardins du Quebec (CCDQ) issued its inaugural legislative covered bond on Tuesday, but despite a high quality book, a seemingly attractive spread and a two week hiatus in term benchmark covered bond supply, the issuer could only muster a modest oversubscription.

European covered bonds were steady on Monday, despite the mounting concerns over Ukraine that restarted a sovereign flight to quality bid. In the primary market National Australia Bank announced its first 10 year in Australian dollars for pricing on Tuesday, ahead of the European Central Bank meeting on Thursday and the US non-farm payroll report on Friday.

Covered bond bankers have developed a penchant for testing market appetite on days when key buy-side accounts are likely to be thinly staffed it seems.

Landesbank Baden-Württemberg (LBBW) returned to the covered bond market on Monday to issue a €500m 15 month Pfandbrief. The short dated funding was driven by the issuer’s asset liability matching needs and provided cheaper funding than it could have found in the money markets.

Covered bond disclosure has improved, but national transparency templates do not yet comply with the Capital Requirements Regulation, according to Barclays covered bond research. Bank investors must in theory apply a higher capital charge to their covered bond investments, it said.

Hypo Real Estate Holding plans to sell Depfa plc in the first half of this year, it announced on Friday. However, bankers told The Cover they did not believe it would make this target, given the low level of bids.

27 – 28 February Clifford Chance LLP, London

Key European investors have asked bookrunners on Caisse Centrale Desjardins du Quebec’s (CCDQ) debut euro covered bond for extra time to get credit lines in place. The Canadian bank will print early next week.

Primary market activity picked up on Wednesday as France’s BPCE took advantage of secondary demand at the long end of the French curve to tap its November 2023 issue by €500m taking the deal size to €1bn. After issuing a deal in December, the National Bank of Canada has returned to mandate the same group of leads as its previous deal for a European roadshow.

Ratings dominated the covered bond market on Tuesday as several Spanish deals were upgraded, while Austria’s Hypo Alpe-Adria Bank’s covered bonds were downgraded. A number of core issuers are monitoring the market, but are not yet ready to the pay the new issue premiums being demanded.

Spain’s rating upgrade from Moody’s has raised the sovereign ceiling rating from A3 to A1 and should lead to Cédulas upgrades, Crédit Agricole said on Monday. However dealers reported Cédulas profit taking and said the prospective upgrades were priced in.