Covered Bonds

After Moody’s downgraded French mortgage guarantor Crédit Logement from Aa2 to Aa3 this week, SG said on Wednesday that a downgrade below single-A would result in a 20% haircut to the value of the mortgage loan collateral it guarantees.

Münchener Hypothekenbank opened books on a £200m three year floating rate deal on Wednesday morning, becoming the latest borrower to take advantage of a starved sterling investor base.

Nykredit announced a benchmark junior covered bond mandate on Wednesday, just a day after Standard & Poor’s warned that Danish covered bond ratings could become increasingly reliant on the junior asset class.

Covered bond spreads have been tightening for well over a year, but now core markets are trading close to swaps or through them, there is a sense that performance potential is becoming limited. But this might not be so, The Cover argues. If covered bonds are put on an equal pedestal to sovereign bonds, the bank bid should improve greatly and with supply still sparse, spreads are likely to tighten even further.

Crédit Mutuel CIC became the first French issuer to tap the sterling market for more than five years on Monday. It joined the growing list of foreign banks that have tapped the blossoming sterling covered bond market, in the absence of any UK bank deals for almost a year. In so doing, it raised funds at much cheaper levels than it could have done in euros.

Austria’s Vorarlberger Landes-und Hypothekenbank (Vorarlberger Hypo) made its mortgage Pfandbrief debut on Tuesday, selling a tightly priced seven year bond and taking supply in that maturity to over €4bn in only a week.

The rating stability of ABS backed by small to medium sized enterprises is high, according to latest research from Moody’s. The news may cause covered bond purists to reconsider their view on SME backed bonds, which they believe should not have "covered bond" status, as SME backed loans are less secure than those backed by mortgages.

HypoVereinsbank (HVB) closed a €500m seven year mortgage Pfandbrief on Monday after opting for a more generous starting point than those on recent German deals. It was rewarded with a far larger orderbook, which allowed it to price the bond well inside initial price thoughts.

Crédit Mutuel CIC sold its first covered bond of 2013 and its first euro benchmark in over a year on Monday, launching a €1.25bn seven year transaction flat to its own curve.

Covered bond syndicate officials are predicting as many as five deals will be launched next week following a wave of successful core transactions.

The quiet period for FIG ended this week with a handful of deals emerging in the covered bond and senior unsecured markets. And in contrast to several tightly priced core European deals seen earlier this year, in which investors had pushed back on terms seen as too aggressive, bankers are now reporting a shift in sentiment.

HSBC France surprised the covered bond market on Tuesday this week when it returned for the first time since 2010, breaking a euro supply drought that had been in place since mid-March.