Covered Bonds

Suspension of trading in 3CIF bonds has led to speculation that the borrower, which faces imminent multi-notch downgrades from Moody’s, has wholesale funding difficulties. It could now be forced to merge with another larger entity, such as Banque Postale, bankers told The Cover.

The risk profile of Danish agricultural loans is putting pressure on the country’s borrowers and their covered bonds, Moody’s said on Wednesday. Furthermore, Standard & Poor’s reported that Danish banks are vulnerable to a rise in interest rates, which would be particularly painful for the agricultural sector and could hamper the banking system’s recovery.

Non-Eurozone supply remains in high demand, but Caisse de Refinancement de l'Habitat (CRH) could be the first core European name to test the water this week, syndicate bankers told The Cover.

The Spanish covered bond market has reacted stoically to the government’s pledge to support Bankia. Spanish government bond yields are steady, as are its Cédulas. But covered bond investors, who sit at the top of the capital stack, are concerned that the central bank has subordinated them.

Länsförsäkringar Hypotek became the first Nordic issuer to tap the Swiss franc market in covered bond format this year when it priced a Sfr175m seven year note on Thursday. However, with pricing still not meeting larger Nordic financials’ targets, market participants do not expect a flurry of covered bond supply out of the region to follow.

With asset encumbrance fears hanging over the covered bond market and heavy handed regulation in the form of Solvency II threatening to kill off the RMBS market, mortgage funding is under pressure like never before. But a third way might be emerging, in the shape of whole loan sales.

Barclays sold a hugely successful 144A/RegS $2bn five year trade through leads Barclays, Citigroup, HSBC and UBS. But the inaugural deal from Panama's Global Bank was postponed. UK issuers have turned to RMBS.

The Russian mortgage market has grown quickly, lifting prospects for fledgling covered bond issuance. However, despite being Ucits eligible and in line with the European Covered Bond Council’s Label definition, the country’s legal framework is not yet aligned with western Europe’s.

Berlin Hannoversche Hypothekenbank (Berlin Hyp) and Dexia Kommunalbank Deutschland (DKD) have bought back a combined total of over €3.5bn in public sector Pfandbriefe across 14 outstanding trades. As well as providing a precedent for other public sector lenders to follow, the buybacks should help tighten German Pfandbrief spreads in the secondary.

Despite the holiday shortened week, activity in the secondary covered bond market has been relatively good. Though not all houses attest to seeing flows, some banks have seen quite a lot. German and Scandinavian markets are very well supported, the UK has performed very well, France is mixed and Spain is offered.

With asset encumbrance fears hanging over the covered bond market and heavy handed regulation threatening to kill off the ABS market, mortgage funding is under pressure like never before. But a third way might be emerging, in the shape of whole loan sales.

Barclays took year to date dollar benchmark covered bond supply to $24bn with a well oversubscribed 144A/RegS $2bn trade. Panama’s Global Bank, however, has postponed its inaugural dollar deal, which would have been Latin American’s first covered bond.