Covered Bonds

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.

Commerzbank will put the finishing touches to the marketing of its new public sector-backed covered bond programme on Friday, after getting ratings from Moody’s and Fitch. The programme is collateralised mainly by export credit agency (ECA) guaranteed loans — unlike the bank’s old Eurohypo programme, which was put into wind-down in 2012 and was backed by loans to municipalities.

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.

Strong political support for depositors makes the risk of losses to covered bond investors from borrowers setting off loan payment obligations against insured domestic bank deposits highly remote in most EU countries, Fitch said on Thursday.

Europe’s planned financial transactions tax will have dangerous consequences for liquidity and the real economy, covered bond bankers are set to tell regulators. They will also highlight the problems with encumbrance reporting that the European Banking Authority wants to introduce and they will say that there is no single solution to SME financing. The European Covered Bond Council will set out its response to these issues at its steering committee meeting in Lisbon at the end of the month.

Selling continued in the secondary market on Tuesday, covered bond dealers said, with French, Norwegian and UK bonds hardest hit. German, Swedish and Finnish markets have held in better.

Commerzbank is marketing its new public sector backed covered bond programme, after gaining ratings from Moody’s and Fitch. It is collateralised mainly by export credit agency (ECA) guaranteed loans, unlike the bank’s old Eurohypo programme, put into wind down in 2012, which was backed by loans to municipalities.

Caisse de Refinancement de l'Habitat (CRH) sold its second Swiss franc covered bond of the year on Tuesday, targeting the long end with 12 year paper. While it was able to fund at a favourable level compared to its curve, the long maturity hampered orders.

Finland’s Aktia Bank mandated leads on Monday for its first covered bond, that Moody’s has provisionally rated Aaa. Despite high quality collateral, the covered bond rating is vulnerable to a downgrade of the borrower.

Markets opened on a surer footing on Monday but after last week’s volatility bankers want to see more stability before restarting primary issuance. Tuesday’s German constitutional court hearing on the ECB’s Outright Monetary Transactions programme will also have a strong bearing on sentiment, they said.

Banco Santander Chile is expecting to issue the first ever covered bond from the Andean country in July, aiming to create a liquid market that can support one of the most developed mortgage markets in emerging economies. However, an international placement will be a challenge.

Secondary market selling of covered bonds slowed a little on Friday ahead of the US payrolls report. But bankers say the US data won’t make much of a difference as further selling is likely. In the primary market there is concern that if a deal is incorrectly priced, it will add to problems and potentially close the funding window for other issuers