Covered Bonds

The decline in the proportion of covered bonds rated triple-A may be flattening out, Moody’s data shows. However, Standard & Poor’s put €69bn of multi-Cédulas on credit watch negative on Thursday, while SNS Bank and Monte dei Paschi di Siena covered bonds are also feeling downward pressure.

Spanish banks dominated covered bond supply in January, as French issuers swapped to senior unsecured for early year funding.

Fears that subordinated creditors to SNS Bank would be subjected to harsh burden-sharing measures eased this week as talk of a private recapitalisation picked up. But the uncertainty drove sharp moves in the bank’s subordinated debt.

Berlin Hypothekenbank (BHH) encountered sluggish demand for its €1bn mortgage Pfandbrief on Tuesday as it faced a core bid that has been steadily deteriorating since the start of the year. The deal stands as the only covered bond in the primary market this week, as bankers again warned that tight prints cannot be taken for granted.

Pfandbriefbank der Schweizerischen Hypothekarinstitute (PSHypo) priced a three tranche Swiss franc transaction on Thursday morning. It launched a new five year line, along with re-openings of 10 and 16 year bonds. Unusually for a Pfandbriefbank trade, investors focused on the shortest of the three tranches.

Changes to Spanish mortgage law could hit holders of Cédulas as more households will become eligible for mortgage renegotiations through debt-for-asset swaps, and over-collateralisation could fall as mortgages are cancelled. The Ministry of Economy outlined the changes on Wednesday.

A Frankfurt-based asset manager, with more than €20bn in covered bonds under management, spoke to The Cover, on condition of anonymity, on Thursday about the good environment for higher yielding debt, the prospect of German insurers’ absolute return targets being lowered soon and the changing nature of investment mandates, which will favour innovative secured products such as the SME structure being pioneered by Commerzbank.

Asset managers have been buying into covered bond deals in greater quantities this month, according to data from The Cover. Their bid has been particularly strong in issues from peripheral Europe, and has come at the expense of central bank participation, which has halved.

Average cover pool losses from public-sector covered bonds are higher than those of mortgage programmes for the first time since Moody’s first published its quarterly monitoring overview in 2009, the rating agency said in the latest of the series. The data also shows a quarter of all programmes still face a downgrade if their issuer was downgraded by just one notch.

The new French covered bond municipal financing agency, Caisse Française de Financement Local, will begin operations on Thursday (January 31). Its first benchmark issue could be seen as early as the third quarter. Bankers believe the newly issued bonds should trade in line with the tightest French covered bonds.

Berlin Hypothekenbank (BHH) struggled to sell a €1bn mortgage Pfandbrief at its target spread after opening books at the wide end of initial price thoughts, at 1bp through mid-swaps, on Monday. The tight level surprised bankers, due to the recent decreasing bid for core names offering slim yields and even slimmer premiums.

South Korea could have its covered bond law in place by September, after its National Assembly puts it to the vote next month. The country’s cabinet has approved the draft covered bond bill for a February vote. Enactment could follow within six months.