Covered Bonds

The Norwegian FSA is expected to limit credit growth through the application of a higher capital charge and Norwegian banks will be monitored on a case-by-case basis on mortgage transfers to their covered bond programmes.

HSH Nordbank became the second German borrower of the year to fund SME loans with a covered bond this week, after using a KfW guarantee to turn the loans into eligible public sector collateral. As German Pfandbrief law bars unguaranteed SME loans, this approach offers an alternative to structured issuance. But bankers and analysts are divided over its viability.

Risk appetite continued to improve on Friday with Spanish government bond yields falling to levels not seen for at least two years. Positive peripheral sentiment bodes well for Cédulas issuance, but two German issuers are also considering deals.

HSH Nordbank became the second German borrower of the year to fund SME loans with a covered bond this week, after using a KfW guarantee to turn the loans into eligible public sector collateral.

Cédulas are in demand, following the outperformance of the Bono over the last week. However, this appetite for Spanish covered bonds flies in the face of fundamental credit risks which, Moody’s has warned, are very high.

Norway’s banks should be monitored on a case-by-case basis on mortgage transfers to their covered bond programmes, the country’s regulator said this week, putting to rest fears that it might impose a hard issuance cap.

Spain’s Bankia is offering to buy back €750m of mortgage backed Cédulas in an exercise that bankers said should help bolster the bank’s covered bond overcollateralisation (OC) and its tier one capital.

Caisse de Refinancement de l’Habitat (CRH) executed a lightning fast long six year covered bond early on Thursday morning, to avoid any potential volatility from the European Central Bank meeting on the same day. But the deal was also CRH’s smallest benchmark print in years, indicating a much reduced need for secured funding across France’s banking system.

New York

Caisse de Refinancement de l'Habitat (CRH) executed a lighting fast long six year covered bond early on Thursday morning, to avoid any potential volatility from the European Central Bank meeting on the same day. But the deal was also CRH’s smallest benchmark print in years, indicating a much reduced need for secured funding across France’s banking system.

High yielding Italian and Spanish covered bonds continue to attract plenty of interest, though core market secondary flow remains limited. The bull move has resumed surprisingly quickly, given the political uncertainty after the Italian election, bankers said on Thursday

The European Banking Association wants a clear measure of liquidity but sticking purely to data will not provide this. When a bank needs funding in a tight spot, it all comes down to the bid.