Covered Bonds

After emerging from blackout on Tuesday, Stadshypotek returned to the covered bond market on Wednesday, mandating joint leads for a euro benchmark. Despite pricing at the tightest seven year Scandinavian deal since 2006, the borrower attracted robust demand, in an exercise that, once again, highlighted just how undersupplied the covered bond market has become.

Italian FIG issuers continued their assault on the funding markets on Tuesday, with Intesa Sanpaolo and Banca Popolare Milano following Monday’s deals from UniCredit and UBI Banca. With Italy having overcome its recent political travails and the market enjoying a rally that some bankers fear is unsustainable, borrowers are falling over themselves to pre-fund for 2014 — a year which Moody's expects to be difficult for Italian banks.

UniCredit Bank Austria returned to the covered bond market for the second time this year to issue the country’s seventh benchmark in euros. Despite pricing with little to no new issue premium the deal attracted good demand from a wide group of investors.

21 – 24 January 2014 The Cosmopolitan of Las Vegas. Las Vegas, NV

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.