Covered Bonds

Royal Bank of Canada (RBC) returned to the covered bond market for the fifth time this year, and its second time in euros, to issue a €1.5bn benchmark five year on Tuesday. The deal priced with a concession to where the only other Canadian euro five year was trading — but offered a negligible new issue premium.

Almost half of Spanish multi-Cédulas issuers have increased their cover pool overcollateralisation (OC), according to latest Moody’s research. However, the ratio of non-performing loans is still rising. Of the 31 issuers that make up the multi-Cédulas sector rated by Moody’s, 14 increased eligible OC and 11 decreased eligible OC during the second quarter, compared to the end of the first quarter.

Bankers hope for more covered bond deals this week, though they do not expect the wave of primary issuance to continue. The secondary market is well supported, especially for peripheral names, though the multi-Cédulas rally has lost momentum and the sector could be susceptible to profit taking.

Conditional pass-through covered bonds are on the rise, Standard & Poor’s said on Monday. “Conditional pass-through (CPT) covered bonds could gradually become more popular, starting with some Dutch issuers,” S&P wrote in its report: Conditional Pass-Through Covered Bonds May Be Here To Stay, published on Monday.

Banco Bilbao Vizcaya Argentaria has begun updating the value of properties backing mortgage loans collateralised in its Cédulas. Though this is likely to lead to a decrease in the over-collateralisation (OC) ratio, Moody’s applauded the move as it will improve transparency on the credit quality of the cover pool assets.

Covered bonds from Denmark and Luxembourg, as well as some from the Netherlands, could lose the Covered Bond Label, when it becomes aligned with the Capital Requirements Regulation from the start of next year, bank analysts have warned.

BBVA’s radical decision to index the mortgage cover pool backing its covered bond programme to the current value of house prices sets a new transparency benchmark in Spain. But it also underlines the indefensible regulatory bias in favour of covered bonds and against securitization, a far more transparent product.

Canadian Imperial Bank of Commerce (CIBC) became the second Canadian issuer to price a legally compliant covered bond in Australian dollars. The A$500m floating rate long three year deal, which could have been increased, provided competitive funding and solid investor diversification.

Nearly four months after its roadshow, New Zealand’s ASB Bank finally took the plunge and opened books for a €500m five year covered bond on Thursday. Despite a high rating and fair spread, the deal found only a tepid investor response as it competed head-to-head with Banca Carige. At the same time, Canadian Imperial Bank of Commerce opened books for a long three year denominated in Aussie dollars.

Primary market covered bond activity took off on Thursday after the US Congress voted to extend its debt ceiling deadline to February 7 next year. Four issuers — from Italy, Hungary, New Zealand and Canada — opened books for new benchmarks. The star turn came from Italy’s Banca Carige which, despite strong headwinds, attracted a resounding endorsement from investors for its first deal since March 2011.

OTP Mortgage Bank opened books on a €500m floating rate covered bond on Thursday morning, and set guidance on the mortgage backed deal at 190bp over three month Euribor.

After being absent from the market for nearly three years, HSBC returned for the second time this year to issue a seven year covered bond which, like its earlier 10 year deal, was notable for its breadth and depth of demand.