Covered Bonds

Moody’s cut two Dutch covered bond programmes on Friday after taking action on five Dutch banking groups earlier the same morning. Issuers’ large mortgage books and reliance on wholesale funding made them vulnerable in a poor market environment, it said. Meanwhile, analysts expect house prices and house sales to continue their decline.

After a busy week, activity in the covered bond market was subdued on Friday as participants awaited the outcome to Sunday’s Greek elections and the G20 meeting that will be held on Monday and Tuesday next week. Primary activity was kept alive as NordLB announced it would go on the road with its aircraft Pfandbrief.

A Belgian covered bond law is almost in place, with final approval by parliament expected in October. And according to delegates at a covered bonds seminar in Brussels this week, at least two issuers are preparing to launch deals next January.

Terra Boligkreditt launched its largest ever covered bond on Tuesday when it followed Nordic peer DNB Boligkreditt with a seven year trade. The borrower boasts a new ownership structure and collateral of exemplary quality, and with increasing redemptions and a growing mortgage book it could soon become an issuer of jumbo deals, according to Kjartan Bremnes, its chief executive.

Caisse de Refinancement de l’Habitat launched the largest French covered bond in months when it tapped a 12 year trade for an impressive €750m on Wednesday. But despite evident domestic demand, syndicate bankers were sceptical about the outlook for further French supply.

DNB Boligkreditt kicked off the busiest week in covered bonds for months with a €1.5bn seven year trade on Monday. Although it had not intended to launch a deal, the borrower said reverse enquiry from buyers and encouragement from syndicates drew it back to the market.

Domestic demand for German covered bonds shows no signs of weakening and is expected to insulate prospective issuers from all but the most volatile conditions following the Greek elections. Deutsche Hypothekenbank Hannover and Aareal Bank launched five year mortgage Pfandbriefe on Tuesday, pricing well oversubscribed deals at the tight end of revised guidance.

Cédulas are under renewed rating pressure following Spain’s three notch downgrade by Moody’s. The Spanish covered bond market is likely to fall to single-A as a result, thereby further reducing its potential investor base. With the sovereign’s rating still fragile, additional downgrades would threaten issuers’ access to vital European Central Bank repo funding.

Cédulas are under renewed rating pressure following Spain’s three notch downgrade by Moody’s. The Spanish covered bond market is likely to fall to single-A as a result, thereby further reducing its potential investor base. With the sovereign’s rating still fragile, additional downgrades would threaten issuers’ access to vital European Central Bank repo funding.

The Sheraton on the Park, Sydney

After a flurry of trades from four jurisdictions during the covered bond market’s busiest week in months, the Spanish sovereign downgrade foiled hopes for further issuance on Thursday. But German Pfandbriefe issuers have thrived on volatility, while Caisse de Refinancement de l’Habitat has demonstrated the thirst for yield among European investors. As such the setback in core supply should be merely temporary.

Caisse de Refinancement de l’Habitat launched the largest French covered bond in months when it tapped a 12 year trade for an impressive €750m on Wednesday. But despite evident domestic demand, follow on trades are likely to have to wait until after the Greek elections.