Covered Bonds

The covered bond market finished this week in a buoyant state, with participants confident that new issue volumes would pick up next week, despite the threat of a US government default the week after. Nevertheless, issuance for the rest of the year will be well below average, and with redemptions exceeding supply by a large margin, the technical squeeze looks likely to remain in place – particularly in Spain.

UBI Banca is set to make a return to the covered bond market for the first time in two and a half years. After mandating leads for a benchmark euro deal on Friday, books are expected to open on Monday

Financial markets were forced this week to begin thinking about the risk of a US debt default, though they were still able to act as normal.

The European Central Bank’s (ECB) clarification of the way in which higher haircuts are applied for retained covered bonds took effect on Tuesday. Crédit Agricole covered bond research praised the new framework for being less harsh than had originally been assumed.

The European Banking Authority (EBA) on Monday set out new rules will put an end to an accounting gimmick that can flatter bank capital ratios as it published the final draft of its Regulatory Technical Standards (RTS) on close correspondence between the fair value of an institution's covered bonds and the fair value of its assets.

Despite some investors snubbing NIBC’s popular new conditional pass-through covered bond (CPTCB) structure when it was priced on Tuesday, analysts say there are a number of reasons why the structure should be on RMBS and covered bond investor buy lists alike.

The strong reception NIBC encountered for its conditional pass-through covered bond from traditional covered bond investors pays testimony to its regulatory endorsement from the Dutch central bank. This approval gave the product a much wider appeal than was initially expected, suggesting there is scope for a broader range of issuers to consider this structure than was first thought.

The European Banking Authority (EBA) on Monday published the final draft of its Regulatory Technical Standards (RTS) on close correspondence between the fair value of an institution's covered bonds and the fair value of its assets. The document will put an end to an accounting trick that allowed banks to make their capital position appear better than it was.

NIBC has priced the first conditional pass through covered bond in line with guidance building a comfortably oversubscribed book. But whether other issuers will attempt similar deals remains to be seen.

Covered bonds from the Eurozone periphery, and from the weaker credits in particular, are likely to offer the best performance in the covered bond markets, said Deutsche Bank on Tuesday. The banks predicts that this group of credits will continue to offer the best performance in a market set for tighter spreads as it shrinks in size over the next three years.

The European Central Bank’s (ECB) clarification of the way in which higher haircuts are applied for retained covered bonds took effect on Tuesday. Crédit Agricole covered bond research praised the new framework for being less harsh than had originally been assumed.

A final decision on the timing of NIBC’s conditional pass-through covered bond will be taken on Tuesday morning when the outcome to the US political impasse over the state budget and Obamacare should be known. Political risks were also evident in Italy on Monday, though Italian covered bonds have so far held steady as the dearth of supply has kept spreads close to their tightest levels of the year.