Covered Bonds

Caisse de Refinancement de l’Habitat (CRH) issued its second big Swiss franc covered bond in three months, a Sfr375m dual trancher, bringing its 2012 supply in the currency to Sfr1.025bn.

The evolution of mortgage funding in the UK market has led to some convergence of RMBS and covered bonds as both markets compete in the three year floating rate space. With investors expected to favour secured instruments and issuers seeking innovative ways to address funding and rating challenges, the UK experience might prove to be a foretaste of things to come in Europe as a whole, The Cover argues.

Skipton, Coventry and West Bromwich building societies have recently priced or are marketing UK RMBS deals. The funding levels are close to each other and are not much more expensive than what could have been achieved in covered bond format.

Further credit rating agency and roadshow details have emerged on the inaugural covered bond deal from Latin America. Global Bank’s transaction is notable for its soft bullet structure and its loan assets. Half of these loans qualify for preferential interest rate subsidies and their payment is deducted directly by employers from employees’ pay checks.

Increasing encumbrance on bank balance sheets could become an “arms race spiral” of even greater encumbrance, risking financial stability, the Bank of England’s Andrew Haldane said in comments released on Tuesday.

Long gone are the days when Cédulas and Pfandbriefe traded within a few basis points of each other and no one could conceive of a covered bond default. Today that prospect is only as remote as a sovereign default. So spare a thought for investors who have no way of hedging their risk.

Primary activity in the European covered bond market focused on France on Tuesday after BPCE said it would tap its 10 year. There was a mixed reception to the news amid fears that OAT underperformance would hit demand, but bankers countered that investors were desperately searching for yield.

Deutsche Bank is marketing a US dollar denominated deal for Ba1 rated Global Bank in Panama. The transaction is expected to be structured and does not benefit from a legal framework or special regulatory oversight.

Dexia Kommunalbank Deutschland (DKD) on Monday announced it will buy back up to €3bn in public sector backed Pfandbriefe across 10 outstanding trades.

A template for covered bond credit default swaps should be launched in the next few weeks, according to a person with knowledge of the initiative. Some syndicate bankers were sceptical of the need for added protection on covered bonds, given their dual recourse structure and inherent risk profile. Others, however, felt that with a paradigm shift in risk perception since the start of the financial crisis, the time could be right to offer buyers an extra layer of security on an increasingly important product.

Berlin Hannoversche Hypothekenbank (Berlin Hyp) will issue a jumbo mortgage Pfandbrief in the summer, after a tender of four public sector backed trades that will help support an increase in the overcollateralisation of its mortgage cover pool, the issuer told The Cover.

Denmark’s Nykredit Realkredit will launch a new mortgage funding model this quarter, in an attempt to lower its covered bond issuance costs in an environment of falling house prices.