Covered Bonds

Investors are cash-rich and covered bond spreads look set to remain fairly stable – ideal conditions for covered bond issuance. However, deal flow is set to remain quiet as most issuers are well funded, and those that could do deals are about to enter blackout period.

French and German covered bonds have outperformed sovereign and agency debt from the same countries, and investors would now benefit from switching out of covered bonds, Barclays analysts have advised. But traders countered that a dearth of new issuance is preventing such profit taking, and will help keep core covered bond spreads tight in the short term.

Raiffeisenlandesbank Niederösterreich-Wien made its debut in the Swiss franc market on Thursday, with a Sfr150m 1% November 2020 covered bond.

It's hard to make banks adhere to CMBS disclosure standards if investors are happy to ignore them. The buyside only has itself to blame for not insisting on proper transparency.

Norddeutsche Landesbank sold a blow-out debut dollar covered bond on Wednesday, becoming the first German borrower to tap the 144A covered market since 2006.

Portugal’s Banco Santander Totta achieved only a paltry level of participation in an exchange offer of covered bonds for RMBS, exchanging just €3m of HipoTotta notes this week. Yet hopes are rising for more covered bond liability management exercises in Spain.

A transfer of assets to the proposed bank clean-up vehicle in Spain, the Asset Management Company (AMC), could hit Cédulas noteholders, as it would reduce overcollateralisation — although they could also benefit as the likelihood of issuer defaults would be reduced.

Dexia Municipal Agency, the French local authority funding entity, told EuroWeek that it will return to the Obligations Foncières market in 2013 after its sale to a consortium of the French government, Caisse des Dépôts (CDC) and La Banque Postale (LBP).

Norddeutsche Landesbank has sold a stand-out debut dollar covered bond, ending Germany’s six year absence from the 144A covered market. The three year deal on Wednesday carried the lowest ever coupon for a covered bond in that currency and is the only outstanding public sector backed trade in the dollar covered market.

Nearly a quarter of Spanish mortgages could be in negative equity, Moody’s has warned, but with Cédulas collateral marked at historic levels, investors have little transparency on the value of their claim. An updated covered bond structure is fully warranted, but unless it was legally enshrined, the benefit would be negligible, reports The Cover.

Sweden’s financial regulators are concerned at how much encumbrance is on banks’ balance sheets. The country’s borrowers are among the most encumbered in Europe, and despite efforts to increase deposits new covered legislation could make the situation worse.

Banco Santander Totta got only a derisory take up for its RMBS to covered bond exchange — the first time a bank has offered such a swap. Meanwhile, analysts and lawyers dashed hopes for the tendering of low priced Spanish multi-Cédulas, saying that such exercises would be technically infeasible.