Covered Bonds

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.

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.

A group of investment banks active in the covered bond market have pledged their support to the European Covered Bond Council's (ECBC) label initiative by allowing issuers to offset the cost of the label against fees to lead managers.

The results of stress tests conducted by consultancies Oliver Wyman and Roland Berger on Spanish banks are unlikely to improve sentiment on Spanish Cédulas, analysts said on Friday.

The Association of German Pfandbrief Banks (vdp) has responded to Moody’s assertion that its latest transparency initiative has shortcomings. The rating agency said plans to factor sovereign risk into public sector cover pool calculations do not take into account duration risk. But the vdp claims its proposals are already more conservative than those suggested by Moody’s.

Virgin Money is planning to meet accounts next week to discuss a sterling RMBS from its Gosforth prime RMBS programme. At the same time Dutch issuer, Achmea Hypotheekbank, has hired Barclays and Rabobank as lead managers for a new prime RMBS.