Covered Bonds

Pfandbriefbank sold a Sfr435m ($474.4m) triple tranche bond on Thursday via Deutsche Bank, UBS and Raiffeisen Bank that included a new 15 year deal and two taps. The former was priced in line with investor preferences thanks to a Swiss franc market saturated with long dated supply.

Covered bond supply should restart next week given a stable opening, said syndicate officials on Friday, and several issuers are looking to launch trades. But with upcoming elections in France and the market still full of uncertainty after the renewed volatility of early this week, headline risk could keep second quarter supply muted.

The value of collateral backing Cédulas and RMBS came under increased scrutiny on Thursday following the publication of Banesto’s first quarter results. Unlike in many jurisdictions, Spanish cover pools are not indexed to the declining value of house prices, with the result that they can quickly become overstated.

The covered bond rally that began in the first quarter of 2012 has stalled, with Italian, Spanish and French spreads coming under pressure in the secondary market. Some analysts recommended that investors prepare for further spread widening by moving out of peripheral paper. But syndicate officials said levels were simply correcting at the end of an overblown rally, and that technical factors would continue to support supply.

The value of collateral backing cédulas and RMBS came under increased scrutiny on Thursday following the publication of Banesto’s first quarter results. Unlike in many jurisdictions, Spanish cover pools are not indexed to the declining value of house prices, with the result that they can quickly become overstated.

Pfandbriefbank sold a Sfr435m ($474.4m) triple tranche bond on Thursday via Credit Suisse, UBS and Raiffeisen Bank that included a new 15 year deal and two taps. The former was priced in line with investor preferences thanks to a Swiss franc market saturated with long dated supply.

Spread tightening has stalled after the first quarter rally, according to DZ analysts, who urged investors to reposition themselves in preparation for spread widening. But with many investors still on holiday, the secondary market has become easier to move with smaller tickets, and traders said it was too early to draw conclusions from an increase in selling.

This year will see an important step taken in the European implementation of Basel III’s Liquidity Coverage Ratio. For covered bond bankers, the thorny issue of what constitutes a liquid product is top of the agenda and they argue that a purely quantitative approach is the wrong way to go about it.

The Pierre, New York

The passing of Australian covered bond legislation gave the covered bond market a timely fillip. Without the arrival of Australian issuers, 2012’s year to date level of supply would be even further behind last year’s. As such, subdued eurozone issuance has quickly turned Australian covered bonds into a pillar of the market – and not just a convenient safe haven trade.

Sovereign markets have started to stabilise but covered bonds have lagged this move and remain under pressure in the secondary market. The focus has been on Spain but dealers also reported weakness in French covered bonds. In the primary market, issuance hopes remain dim, though bankers think there may be room for a Swedish or Finnish deal.

The ECB’s Long term Refinancing Operations have sent cash-rich investors rushing back to the primary and secondary markets. But while some jurisdictions have re-opened, others remain closed. The €1tr of liquidity injections have improved primary issuance but could the epic secondary rally be headed for disaster?