Covered Bonds

EUROWEEK: SME covered bonds don’t seem to be accepted as the real thing by many traditional covered bond investors but Fitch rated the Commerzbank SME deal as if it were a covered bond. Why is that?

EUROWEEK: How do we feel about other non-traditional forms of collateral such as shipping or aircraft loans?

EUROWEEK: In what way are proposed covered bond regulations affecting the market?

EUROWEEK: Senior unsecured spreads have tightened considerably versus covered bonds but is this sustainable?

The conditional pass-through covered bond structure will be the key focus of debate at Wednesday’s plenary session of the European Covered Bond Council’s plenary session, at the Caixa Forum in Barcelona. Investors are likely to baulk at the structure’s inherent extension risk, but the sell side will counter that traditional bullet structures could become pass-through as documentation is not specific and they have never been properly tested.

This week’s French covered-bond supply was the highest in the year so far as three issuers collectively raised €3bn on demand of €5.5bn over nearly 300 orders. Though the sell side predictably claimed all deals were a success, investors conspicuously exercised a high level of discrimination.

Banco Popular Español returned to the covered bond market for the second time this year and reduced its reliance on retained issuance to bring a four year Cédulas that was increased from €500m to €750m. Despite being barely oversubscribed and overly reliant on the domestic bid, the book was granular.

AIB Mortgage Bank issued its second covered bond of the year, extending its curve and pricing tighter than where the Bank of Ireland had issued. However, the scale of demand was a third of its peer’s and the breadth of investors that took part was almost halved as big investors were not ready to increase their country limits.

This week’s French covered-bond supply was the highest in the year so far as three issuers collectively raised €3bn on demand of €5.5bn over nearly 300 orders. Though the sell side predictably claimed all deals were a success, investors conspicuously exercised a high level of discrimination.

Sparebanken Vest Boligkreditt (SVB) returned to the covered bond market after an 18 month absence to issue a no-grow €500m five year that was priced flat to its curve.

NIBC’s pass-through covered bond, which has been successfully registered with the Dutch central bank and will be compliant with CRD and Ucits, should attract investors, according to ABN Amro research. But they could have to wait an extra four years to be repaid if the pass through is triggered, a level of uncertainty that should be manageable said the analysts.

BPCE has raised €1bn, avoiding paying a new issue premium while funding well inside levels that prevailed even a month ago. But with volatility likely to rise and more supply expected, investors have been careful not to inflate their orders, which will be filled in full.