Covered Bonds

Hungary’s government is considering legislation to retroactively alter foreign currency mortgage loans. Mortgage borrowers would then be able to claim cash back from the lending banks, which could have a knock-on effect on covered bondholders. MPs will debate on the law change on Wednesday, but the share price of the country’s OTP Bank has already tumbled on fears that its 2014 profit would be wiped out if the proposal becomes law.

On Thursday, the US House Financial Services Committee held a hearing for a new bill that will introduce a legislative framework for US covered bonds. People involved with the process told The Cover that legislation faces strong ideological divisions and will take a long time to materialise.

The European Central Bank on Thursday changed its risk control framework in ways that benefit securitization and hinder covered bonds for the first time since the onset of the financial crisis. The move came as a surprise to covered bond bankers, but the ABS world has long considered it to be overdue.

The secondary covered bond market saw modest flows on Friday but dealers reported a stronger bid for core names, in particular long end French deals which have not reacted to downgrades. In contrast, the multi-Cédulas sector remains offered reflecting its large exposures to the recently downgraded Bankia.

Royal Bank of Canada has reopened the Canadian covered bond market with the first deal to comply with new covered bond legislation that the country put in place late last year. The landmark $1.75bn trade was the first Canadian covered bond of 2013 and is likely to be followed by a series of other deals — although these may not now emerge until September, writes Bill Thornhill.

Core European covered bonds were supported on Thursday despite recent downgrades. But weaker Spanish names were under pressure on concerns that the European Central Bank could be poised to reconsider the repo treatment of covered bonds relative to ABS. Meanwhile, primary hopes were hit after it emerged that programme documentation delays could cause Canadian Imperial Bank of Commerce (CIBC) to launch its benchmark in September rather than next week.

Nordea Group has hired a Swedish central banker as its new head of group funding, to replace Fanny Borgström, who is retiring in August after 16 years at the bank.

Royal Bank of Canada has reopened the Canadian covered bond market with the first deal to comply with new covered bond legislation that the country put in place late last year. The landmark $1.75bn trade was the first Canadian covered bond of 2013 and is likely to be followed by a series of other deals — although these may not now emerge until September.

The US House Financial Services Committee is expected to hold a hearing this week on a new bill that introduces a legislative framework for covered bonds and is part of a wider initiative that aims to wind down the country’s government sponsored enterprises (GSEs).

Canadian Imperial Bank of Commerce (CIBC), which is roadshowing for a euro covered bond, has the potential to price inside last week’s deal for Quebec, bankers told The Cover on Monday. Bankers do not expect covered bond issuance from European banks until the end of August at the earliest. The market has barely reacted to Friday’s downgrade of France by Fitch and in some cases, spreads have actually tightened.

The distinction between Spanish national champion banks and weaker lenders has become even starker, covered bond traders say. Spreads of multi-Cédulas and Cédulas from second tier banks have moved wider on the back of more rating downgrades.

Landesbank Hessen-Thueringen (Helaba) seized on demand for five year paper and a solid market opening on Thursday to price a €500m tap of its outstanding 1% June 2018 bond, paying only a few basis points over secondary levels.