Covered Bonds

SEB was tempted into a surprise return to the euro covered bond market by the best relative funding levels versus its domestic market for some time, its head of treasury management told The Cover on Tuesday. John-Arne Wang said SEB saw a chance to grab tighter funding on Monday, thanks to a three week drought in the euro primary market.

SEB made a surprise return to covered bonds on Monday, mandating and opening books for a euro denominated seven year deal. As it has not issued a covered bond for nearly two years and investors have been starved of highly esteemed Swedish collateral in euros for almost a year, a first-rate execution was always likely.

The Cédulas pools of Spanish banks that transferred assets to Spain’s bad bank have improved greatly, analysts reported on Monday. However, because eligible overcollateralisation would have fallen below the legal minimum, the banks were obliged to take back the collateral used in retained issuance.

The Swiss government’s decision to impose an additional 1% capital on the risk weighting of Swiss residential mortgages is credit positive, Moody’s said on Monday. The move follows similar efforts by some Nordic authorities to dampen mortgage credit growth, by lowering maximum loan to value ratios. In both cases the authorities avoided interest rate hikes, which would have had a detrimental effect on their currencies.

A multi OBG deal from Italy’s state owned public financing institution Cassa Depositi e Prestiti now looks unlikely, bankers told The Cover on Friday. CDP is expected to decide by the end of this month whether and how to proceed with plans to funnel long term funding to Italy’s smaller banks, which are currently locked out of the markets. A multi issuer Obbligazioni Bancarie Garantite had been touted in the market this week, but industry officials on Friday said this was the least likely option, given the costs involved.

The former Dexia Municipal Agency, now Caisse Française de Financement Local (Caffil), is considering whether to appeal against a French court judgement over three structured loans it made to a local authority.

Stadshypotek issued its first ever sterling covered bond this week and was followed soon after by Bayerische Landesbank. Apart from diversifying their investor base, both issuers also got exceptionally cheap funding, sending a positive signal to other foreign issuers who are looking for a cheap source of diversified funding.

Reforms to the Spanish mortgage market proposed last week "will not trigger a drop in the over-collateralisation (OC) levels of covered bond programmes," Fitch said on Tuesday, contradicting an earlier statement from Moody’s.

There is buying interest in multi-Cédulas again, after several weeks of profit taking. And with stronger Spanish banks likely to swallow up weaker competitors in further bank sector consolidation, there are solid fundamental reasons for holding or increasing exposure to this much-maligned sector, particularly given the lack of potential in the rest of the covered bond market.

Wednesday’s sterling deal from Bayerische Landesbank came as welcome relief to supply starved investors but the paucity of supply has also been particularly marked in the euro market, where issuance volumes are half of last year’s shrunken levels. The technical mismatch is helping to spur demand in the secondary market where Spanish deals are once again in vogue.

Bayerische Landesbank followed Stadshypotek on Wednesday morning by issuing a £200m sterling FRN, which provided it with slightly cheaper funding to euros — a market in which issuance has fallen to half of what it was at this point in 2012.

The former Dexia Municipal Agency, now Caisse Française de Financement Local (Caffil), is considering whether to appeal against a French court judgement over three structured loans it made to a local authority. With as many as €10bn of similar loans in its €70bn collateral pool, the market is watching developments closely.