Covered Bonds

Europe risks stagnating for much of the next decade, or even longer, without bold monetary policy, rapid reform and most importantly of all, a credible banking union, according to German government advisor Clemens Fuest. However, he warns that the banking union as it stands, will not work. Bill Thornhill reports.

As yields have plummeted over the last two years, insurers and asset managers — the mainstay of real money covered bond demand — have struggled to meet return on investment targets. However, as long term liabilities must still be matched, they are turning to alternative assets that, for regulatory reasons, banks are eager to offload. Bill Thornhill reports.

Norwegian banks have increased the credit quality of their covered bond collateral thanks to tighter mortgage underwriting criteria, according to Moody’s.

ABN Amro has become the second bank this year to remove a clause in its covered bond documentation that, in an issuer insolvency, stipulated pro-rata distribution of overcollateralisation to cover asset-liability mismatches for maturing bonds. As a result, the bank has lowered the amount of OC needed for a triple-A rating, making its programme more collateral efficient.

National Bank of Canada got a €1bn five year covered bond safely away on Tuesday, its first deal under the new Canadian covered bond law, after paying a healthy new issue premium to counter falling liquidity.

National Bank of Canada is still deciding when to launch a covered bond in euros, with bankers insisting there is enough liquidity for deals this week, though they conceded that very few issuers are under any pressure to pull the trigger.

The European Covered Bond Council wants covered bonds to be treated as highly liquid assets under Basel III’s Liquidity Coverage Ratio, backing up earlier findings from a European Banking Authority study. The ECBC wants policymakers to consider its Covered Bond Label Convention as an alternative gauge of liquidity, instead of a covered bond’s rating.

UniCredit Bank Czech Republic and Slovakia has issued the first benchmark-sized euro covered bond backed by Czech mortgages. The €800m five year hypoteční zástavní listy transaction was preplaced in the local market with a diversified group of investors.

ING Belgium made a successful covered bond debut on Tuesday, attracting a heavily oversubscribed order book from a wide range of investors for its €1bn five year trade.

Tight spreads for outstanding Pfandbriefe from top tier issuers meant the book build for Landesbank Hessen-Thueringen’s (Helaba) €750m four year bond was slow on Tuesday, even after it offered a discount to secondary levels.

Spain is set to follow Turkey and become the second country with a legal framework for issuing bonds backed by SME loans, according to BBVA CIB research.

Average spreads for Danish covered bond auctions, which finished on Wednesday, hit record lows, Danske Bank research said on Thursday. The auctions were heavily influenced by the government’s amended proposal to extend the maturity of bonds from next year.