Covered Bonds

The senior unsecured funding market faces the threat of bail-in rules being brought forward following comments from the European Central Bank vice president last week. But early implementation may provide a boost to covered bond supply as senior unsecured spreads widen.

Korea Housing Finance Corp has broken the covered bond supply drought, mandating leads for its first dollar benchmark since 2011. The deal is set to come in February, following a roadshow, ahead of Korea’s plans to introduce a new covered bond law later this year.

European investors are more positive about the region’s banks than at any time in the last two years, according to Fitch, as its January survey showed the buyside had more confidence in FIG fundamentals than any other sector.

Moody’s has upgraded Caisse Francaise de Financement Local’s covered bonds to Aaa from Aa2, following a similar move by Standard & Poor’s. The upgrade came after all three major rating agencies rated CFFL’s holding company, Société de Financement Local (SFIL) double-A. CFFL’s previous owner Dexia Credit Local was rated Baa2.

Fitch placed SNS Bank's mortgage covered bonds' AA+ rating on Rating Watch Evolving (RWE) on Wednesday, a day after revising its outlook on Netherlands from stable to negative. Despite this, SNS bank’s covered bonds have rallied strongly since last Friday and have the potential to perform further.

Norwegian banks that follow Basel III’s internal rating based (IRB) approach will be able to hold less capital for residential mortgage loans than they do currently — contrary to reports elsewhere.

The touted acceleration of the bail-in timetable for senior unsecured debt holders by three years to 2015 would cause senior unsecured spreads to widen relative to covered bonds, tilting supply back in the covered market’s favour. However, such action would undermine the fragile confidence in peripheral banks.

Plans to amend Spanish mortgage law will hit covered bond investors and could limit credit flow into the country, Moody’s warned on Monday, as they will weaken lender recourse to borrowers, and lower the level of over-collateralisation.

There has been modest selling of Cédulas on Monday, on the back of weakness in Spanish government bonds. Meanwhile, recently issued covered bonds from the core, many of which were priced flat to their borrowers’ curves, are treading water, said bankers. Despite that, they hope Scandinavian banks, now out of blackout, may bring deals this week.

The European Covered Bond Council’s Label Initiative already covers more than half the market, but more work is needed, according to ECBC head Luca Bertalot. Pfandbriefe remain a glaring absence.

Patrick Steeg is stepping up to be head of debt capital markets at Landesbank Baden-Württemberg, with Günter Gleumes moving to be head of corporate sales and securitisation, The Cover understands.

Patrick Steeg is stepping up to be head of debt capital markets at Landesbank Baden-Württemberg, with Günter Gleumes moving to be head of corporate sales and securitisation, The Cover understands.