Covered Bonds

Cajas Rurales Unidas (CRU) on Thursday extended its covered bond curve by two years but funded 20bp cheaper than its first three year deal issued earlier in the year. The result was all the more notable given that the programme had been downgraded to junk by Moody’s in the summer.

Westpac is set to price the second 10 year covered bond deal in Australian dollars, just three months after Australia and New Zealand Bank’s successful debut. This will be only the second Aussie dollar issue from a domestic bank this year, but the fourth in the currency, as Canadian issuers have also been prevalent.

After a seven year slump and a 50% price fall, the Irish housing market is finally stabilising, although a recovery is still some way off, Moody’s said on Thursday.

Cajas Rurales Unidas (CRU) extended its curve by two years but funded 20bp cheaper than its first three year deal on Thursday. There was enough demand for a larger deal, but with one eye on performance, it appeared to have prioritised higher quality accounts.

Covered bond investors are less sensitive to ratings, according to latest research from NordLB. They also expect spreads to narrow, especially in Germany. The majority would buy conditional pass through structures and some would even look at alternative types of collateral.

All eyes were on Barclays this week, as it brought the UK’s first additional tier one capital deal. The trade is expected to be priced on Wednesday afternoon and is another test for the nascent market, being only the fourth deal in the format. Elsewhere, the senior and covered bond markets continued their strong run as ravenous investors stampeded for paper in the run up to year end.

Cajas Rurales Unidas plans to sell a five year Cédulas Hipotecarias on Thursday, six months after making its covered bond debut. However, this is unlikely to herald a wave of Spanish covered bonds, said bankers. The issuer’s first deal had widened considerably following a Moody’s rating downgrade, but now trades well inside the reoffer.

Sparebank 1 Boligkreditt struggled to get investor traction on Tuesday morning for its €1bn long six year benchmark. The weak demand was in sharp contrast to last week’s €1.5bn five year bond from DNB Boligkreditt, with bankers away from the deal suggesting the long six year maturity may have been slightly too long for asset managers looking to shorten duration.

Swedish finance minister, Anders Borg’s call for the country’s banks to reduce their reliance on covered bonds to fund mortgages has not won support among bankers, who questioned the need to tinker with a funding mix that has served Swedish banks so well.

The most interesting take away from this week’s Bank of Ireland covered bond was the improved depth and quality of demand, according to Darach O’Leary, head of wholesale funding at Bank of Ireland.

All bar one of France’s public sector covered bond programmes face downgrades after Standard & Poor’s cut the Republic of France by one notch from AA+ to AA, Crédit Agricole research said on Friday. However, French mortgage backed covered bonds should avoid any downgrades. In any case dealers were certain the impact would be negligible.

Imminent changes to Denmark’s covered bond law that could extend maturities by 30 years will probably not hit spreads, Deutsche Bank said on Friday, as the trigger for the extension is too remote.