Covered Bonds

New Zealand’s ASB Finance expects to become a regular benchmark issuer in the euro market, having launched its debut covered bond in the common currency this week.

Deutsche Pfandbriefbank (Pbb) has told The Cover that it is planning to launch at least one more euro benchmark covered bond after the summer break. The borrower has already sold three €500m mortgage backed trades so far this year, and said it could turn to jumbo deals in the future.

CaixaBank has written to its fixed income investors to explain why it has bolstered its emergency liquidity reserves, and the effect that this has had on its balance sheet. Bank treasury officials told The Cover it still has plenty of assets available on its balance sheet and confirmed that overcollateralisation would remain close to historic levels — many times higher than the legal minimum.

Increasing reliance on secured issuance and the impact that this has on senior unsecured recoveries could be factored into ratings, Fitch said on Thursday, though it added that the increase in outstanding covered bond issuance is relatively stable for the time being.

New Zealand’s ASB Finance plans to bring annual euro benchmark covered bonds following its successful debut this week. Although happy with the outcome on its first deal, the issuer told The Cover that ASB’s sound fundamentals and the advent of domestic legislation should help tighten spreads for follow-on deals.

Despite the poor performance of Spanish bonds this week, several dealers confirmed buying of top tier Cédulas on Wednesday. Although the long end of the covered bond market is generally well supported, with ongoing demand from yield hungry real money accounts, selective profit taking was also seen as dealers have lightened inventory going into the slow summer period.

Deutsche Pfandbriefbank (Pbb) on Wednesday priced a €500m mortgage backed trade flat to its curve for the second time in just over a month.

ASB Finance launched an inaugural €500m euro benchmark on Tuesday. Pricing was aggressive, said leads, though syndicate bankers away from the trade felt it offered a considerable premium over ASB’s Australian parent, Commonwealth Bank of Australia.

Investors are increasingly fretting over their Cédulas exposure following a round of Spanish bank rating downgrades on Monday. With much of the market likely to slip below investment grade, the spectre of forced selling is looming. But with bids difficult to find in the secondary market, investors have so far pursued a range of options that have allowed them to avoid crystallising losses.

Standard and Poor’s (S&P) has assigned a triple A rating to Nykredit Realkredit's Capital Centre I — and to the bonds that will be issued from it. As the vehicle will be backed by riskier second lien, high loan-to-value (LTV) residential loans – the issuer is obliged to actively manage the level of overcollateralisation.

New Zealand’s ASB Finance has picked banks to arrange its an inaugural covered bond, and could launch a five year euro deal as early as Tuesday morning, said syndicate leads. A poor market opening and a European Union summit on Thursday, however, mean covered issuers have only a two day mid-week window in which launch prospective trades.

High foreign ownership of Cédulas, twinned with prospective rating downgrades that would push deals below investment grade, ­is becoming a bigger concern to analysts. With banks reducing their balance sheets, investors will need to consider other ways of hedging their exposure.