Covered Bonds

Bank of Ireland this week got an overwhelming endorsement from investors for its first publicly syndicated, non-government guaranteed debt since Ireland was forced to seek help from the European Union and International Monetary Fund in late 2010, writes Bill Thornhill.

Spain’s government was due to pass a decree on Thursday that would suspend evictions of homeowners in financial difficulty, as the country works on changes to its mortgage law. The effect on Cédulas performance is likely to be limited, however, given the low threshold for assistance.

Bayerische Landesbank’s decision to commit to a specific overcollateralisation for its two covered bond programmes to maintain triple-A ratings has sent a strong signal to investors that it is committed to keeping its quasi-agency status. But, in today’s regulatory environment the top rating is not economically justified, least of all in Germany where technical factors have compressed the credit curve.

Bank of Ireland’s blowout covered bond has sent a strong signal that, investors are more than willing to endorse the ACS product, after its three years out in the cold. Despite the high spread, the transaction was placed with traditional covered bond investors and provided sustainable funding for the issuer — encouraging other Irish borrowers to bring follow on deals.

DNB Boligkreditt made a surprise return to the market on Wednesday, after half a year away, issuing a smaller than usual covered bond and taking advantage of the exceptionally strong funding conditions in the long end, where supply is scarce.

After much anticipation, the first Belgian covered bond deal has been mandated by Belfius Bank. Supply starved investors, who have been tracking the jurisdiction throughout much of this year while the legal framework was being set up are likely to be rewarded with a generous spread and a strongly performing deal.

Bank of Ireland has priced its first covered bond in three years, attracting a heavily oversubscribed book that was broad and granular. The deal, that many may have considered impossible only a few weeks ago, pays further testimony to the continued bid for higher yielding assets and represents a strong endorsement of covered bonds.

Fitch and Standard & Poor’s have given Belfius Bank’s mortgage covered bonds an expected AAA rating for up to €2bn of issuance from its inaugural €10bn programme, ahead of the Belgian issuer’s debut covered deal, which is being marketed this week.

Bank of Ireland Mortgage Bank looks set to reopen the Irish covered bond market and has appointed joint leads for the first Asset Covered Security since the crisis. With Irish government bonds trading inside Spain’s and Italy’s, the deal should get more competitive funding.

After last week’s primary activity, when two infrequent covered bond issuers tapped the dollar market and one frequent issuer tapped euros, prospects this week are focused on Belgium and Ireland. Secondary flows have been mixed to better bid, especially in core names, and despite increased uncertainty over Greece.

The covered bond market enjoyed a spurt of activity on Friday after weeks of very little issuance with Compagnie de Financement Foncier, Crédit Mutuel-CIC and Belfius following on the heels of Sparebank 1 Boligkreditt last week. But the flurry could well presage another dry spell, as there are only two weeks to go before markets effectively start closing down for year end.

Crédit Mutuel-CIC Home Loan SFH found plenty of demand for its debut dollar covered bond on Thursday from US investors eager for a higher-yielding alternative to SSAs. The issuer paid a premium for its diversification but it looked to pay off as most of the investors in the $3.2bn book were new to the name.