Covered Bonds

Covered bonds are more stable, higher yielding and offer better protection than sovereign paper, according to Barclays analysts. But liquidity and security also drive investment decisions, and negative government bond yields show how much the market values both, an investor told The Cover.

Moody's cut one Italian covered bond programme but left another unscathed this week, after the issuers amended their programmes to loosen ratings triggers. The rating agency believes that relaxing programme standards hurts investors, but at least one borrower has been able to prevent downgrades through sufficient overcollateralisation.

Raiffeisenlandesbank Niederösterreich-Wien (RLB NÖ-Wien) is preparing to become the second Austrian Raiffeisenlandesbank to launch a public covered bond.

Balance-sheet encumbrance poses a growing risk to the supply of senior unsecured debt in Europe, according to new research from Fitch Ratings, while bankers said the level of encumbrance at European banks is an increasing concern for investors.

An asset manager in Frankfurt tells The Cover about breaking the link between covered bonds and their respective sovereigns, investing in peripheral markets, and the problem with regulatory favouritism.

Balance-sheet encumbrance poses a growing risk to the supply of senior unsecured debt in Europe, according to new research from Fitch Ratings.

Moody’s cut one Italian covered bond programme but left another unscathed this week, after the issuers amended their programmes to loosen ratings triggers. The rating agency believes relaxing programme standards hurts investors, but at least one borrower has been able to prevent downgrades through sufficient overcollateralisation.

The race is on for the first Belgian covered bond, with KBC and Belfius Bank (formerly Dexia Bank) jostling to bring the debut transaction once the country's covered bond law is finalised. Speaking on a conference call on Tuesday, KBC Groep’s CFO, Luc Popelier, confirmed rumours that the bank plans to sell its first covered bond by the end of this year or early 2013.

Raiffeisenlandesbank Niederösterreich-Wien (RNW) is preparing to become the second Austrian Raiffeisenlanesbank to launch a public covered bond. The borrower begins a European roadshow in the second half of August and should bring its mortgage-backed debut in early September.

Paul O’Connor, chairman of the European Covered Bond Council, tells The Cover about its work in respect of the Label, associated transparency initiatives and legal developments.

Not so long ago, it was commonly accepted that bank resolution regimes would hobble senior unsecured issuance. Unlike holders of fully protected covered bonds, which cannot be bailed in, senior noteholders faced the threat of haircuts in the event of bank insolvencies.

Covered bond issuers in core Europe have been taking steps to protect their southern European subsidiaries from currency reform should Spain or Italy be forced to abandon the euro.