Covered Bonds

Nobody believes that Danièle Nouy, the chair of the European Central Bank’s new single supervisory board, will allow any European financial institution to fail. On Sunday she was reported to have said that this is what the market expects — but that couldn't be further from the truth.

The defunct multi-Cédulas sector has outperformed the rest of the covered bond market this year, with the price of some deals up by seven points. The sector, which was well supported on Wednesday, gained an extra boost this week when Fitch upgraded several bonds, said traders.

Norddeutsche Landesbank Girozentrale issued its second Flugzeug Pfandbrief at much tighter levels than its first deal. But in the face of competing agency demand and less performance potential, it was unable to attract anything like the scale of demand of its first deal.

Kommunalkredit defied conventional wisdom on Tuesday and priced the first covered bond deal of the year to come flat to its interpolated curve. Given earlier concerns over the lack of appetite for core covered bonds and difficulties surrounding the wind down of Hypo Alpe-Adria, even the leads were surprised by the deal’s extremely positive outcome.

Cash held in segregated accounts for the benefit of Italian covered bondholders, could be bailed in, in the event of an issuer and servicer default, Fitch said on Tuesday, following recent changes to Italy’s covered bond and securitisation law.

Regulatory treatment, sovereign risk and the health of the banking sector are investors’ main concerns, according to a survey conducted by Fitch that was published on Tuesday. They would also like to increase their holdings of Canadian, Australian and UK covered bonds.

German covered bond investors are reticent on the outlook for peripheral markets and most are underweight on southern European covered bonds, a survey at LBBW’s covered bond forum has revealed.

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.