Covered Bonds

The subject of SME loan-backed covered bonds continues to provoke a sharp division of opinion within the industry. And it was a lively topic at the annual covered bond investor conference, held on Thursday in Frankfurt.

Banca Popolare di Milano’s covered bonds face a ratings cut after Moody's downgraded the bank on Thursday. Although BPM’s bonds will remain investment grade, more and more covered bonds are slipping into triple-B territory, said analysts, though structural enhancements could help stop the slide.

ING priced its tightest ever covered bond this week —inside the French sovereign curve. It demonstrated deep demand at the long end despite low yields, said bankers.

ING Bank offered buyers a rare bite of Dutch covered bond supply on Wednesday and launched the country’s first euro benchmark in nine months.

Aareal Bank brought the covered bond market’s third tap of the week on Wednesday, and priced a €125m increase of a mortgage backed Pfandbrief inside mid-swaps. As investors look for more liquidity German borrowers are finding it harder to drum up demand in the private placement market and taps could take up some of the slack, said bankers.

The Spanish region of Andalucia’s controversial plans to expropriate properties and stop evictions should not affect Cédulas holders, RBS said on Tuesday. Last week the regional government of Andalucia proposed a decree law to temporarily expropriate properties from financial entities if they are about to evict the occupants.

Covered bonds from the periphery widened in the run up to Spain’s 10 year auction, bankers told The Cover on Tuesday, but there was not much selling. Spanish government bond yields widened around 5bp-6bp on Tuesday morning and yields were up nearly 40bp from the start of the month.

Banco Popular Español got the primary covered bond market off to a strong start on Monday after it took advantage of the prevailing demand for higher yielding bonds with a tightly priced tap of its March 2017 bond.

Co-operative Bank’s only outstanding covered bond widened further on Monday as RBS warned that the bank’s covered bond rating could fall below investment grade.

Overnight downgrades of Italian and Spanish covered bonds to junk are likely to have only a fleeting impact on spreads, bankers said today. The hunt for yield and a more flexible approach to assessing credit has ensured there is a pool of ready demand for speculative grade debt.

Morocco’s government is set to establish Africa’s first covered bond regime, as it looks to promote mortgage lending in the face of rising demand for affordable housing. However, bond issues are likely to be local currency denominated, limiting the scope for investment from the traditional covered bond buy-side.

Caja Rural de Navarra has picked joint leads for a roadshow and possible deal. Its announcement late on Wednesday came after Moody’s said that the prospective A3 rated €500m Cédulas was over-collateralised by 623%, a level that should allay any concerns over prospective negative equity in the underlying mortgage loans.