Covered Bonds
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Moody’s raised the Timely Payment Indicator of Co-Operative Bank’s Moorland covered bond from Probable to Probable-High on Thursday even as the bank issuer rating was cut to Caa1 from Ba3. The counterintuitive move ensures the covered bond stays in investment grade territory. Though welcome, it has led some participants to conclude that ratings are becoming harder to fathom.
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Six months after the Basel Committee on Banking Supervision proposed capital charges that could have annihilated the ABS market, the securitization industry is about to hit back with a well-orchestrated and perfectly timed counter move that aims to catch the more positive political mood and shape the minds of regulators.
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Co-operative Bank’s only sterling November 2021 covered bond fell again on Thursday, to a spread of 245/220bp and a yield of 4.5%. The cash price has fallen from a 112 peak to 102 and could decline below par as it faces a possible downgrade to the single-B area. But the bonds are money good and should attract interest at wider levels.
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The primary covered bond market is likely to be busy next week, with syndicate bankers expecting to get deals done. But for that to happen, the volatility following Federal Reserve chairman Ben Bernanke’s latest comments on quantitative easing needs to stabilise and real money investors must return, bankers told The Cover on Thursday.
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Aareal Bank priced the covered bond market’s fourth Pfandbrief in a row in on Wednesday. It was unable to tighten pricing from guidance but drew enough demand for its €500m no-grow deal.
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Commerzbank plans to be a regular public sector Pfandbrief issuer following its inaugural deal this week and it is working on a new mortgage backed programme, it told The Cover on Wednesday.
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Two issuers joined the primary covered bond pipeline on Tuesday, improving the market outlook. Caisse Francaise de Financement Local (Caffil) and Raiffeisenlandesbank Niederösterreich-Wien AG have both mandated banks for deals, which will be preceded by roadshows
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Commerzbank priced its inaugural public sector benchmark covered bond on Tuesday. The latest issue was another five year, after Aktia Bank and Helaba broke the drought in that maturity on Monday. Despite investors becoming more risk averse, funding officials at Aktia and Helaba told The Cover on Tuesday that the five year was their choice of tenor and said this was not dictated by market conditions.
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Finland’s Aktia Bank and Germany’s Landesbank Hessen-Thueringen issued in the five year on Monday, ending the drought in this maturity. The moves suggest a change in risk appetite and a greater borrower willingness to offer new issue premiums.
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The outlook for primary covered bond issuance is expected to improve next week as the market has begun to stabilise and issuers will look to take advantage of the short funding window that precedes summer. And with the longer term outlook expected to be less certain there is less incentive to postpone issuance.
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Triple-A covered bonds are underperforming triple-B, while Spanish multi-Cédulas are outperforming single-name, Markit iBoxx indices show. But the relative performance is due to the better liquidity of stronger credits, traders warned, and market prices would not reflect index spreads.