Covered Bonds

Sentiment continued to look poor in European sovereign and covered bond markets on Tuesday following further negative headlines. But technically the market looks well placed, with high redemptions and coupon payments boding well for prospective issuance in the latter half of April.

German ship financing banks have been roadshowing in the US to boost their Schiffspfandbriefe investor base but the industry is unlikely to attract a new investor base soon, said market participants.

Covered bonds are moving towards a system of labelling, designed to act as a kitemark of quality. But investors should remember: there is more to credit analysis than ticking boxes. Weak deals can pass through labelling systems, while great deals can get excluded.

After four years running HSBC’s global push into the covered bond market, Andrew Porter is moving to new pastures. Following the Easter break, he will relinquish his position as global head of covered bonds, based in London, to head the bank’s DCM operations in Toronto.

Covered bond issuance in the first quarter of 2012 was the second busiest ever for the first quarter. Though euro-denominated issuance fell by 45%, this was offset by a large rise in volumes of other currencies such as sterling, dollars and Australian dollars.

The assets that public sector Pfandbrief issuers select as collateral have become more important, according to Moody’s. As concern around peripheral eurozone sovereigns mounts once again, the rating agency reported that some programmes have increased their exposure to peripheral countries and to assets in sub-investment-grade countries.

Axa Bank Europe SCF had the covered bond market to itself this week, printing its first jumbo trade on Tuesday. The rare issuer sold an obligations foncières backed by Belgian RMBS inside where Belgian government bonds were trading, and said it will remain loyal to the French structure even as Belgian covered bond legislation approaches.

After strong global issuance in the first quarter, sentiment in the European covered bond market is showing signs of turning as unease over Spain weighs in. However, with deal supply likely to remain scarce, the constructive technical situation may well persist.

ASB Finance New Zealand joined the caravan of inaugural transactions from Australasia’s largest banks this year when it issued its debut Swiss franc note on Monday, a Sfr200m 1.375% 6-1/2 year fixed rate covered bond.

Moody’s provided a timely reminder on Monday that all is not right in Spain. Following a 41% year-on-year decline in mortgage lending, over-collateralisation levels have eroded, the agency said in a report that was published on Monday. The news came against a background of cédulas selling as concerns mounted for the country’s banking sector, with non-performing loans soaring and house price falls accelerating.

French legislation and a strong structure allowed Axa Bank Europe SCF to price a jumbo trade backed by Belgian collateral inside of where Belgian government bonds were trading. Even if long awaited covered bond legislation arrives in Belgium later this year, the issuer told The Cover it intends to remain loyal to Obligations Foncières.

After strong global issuance in the first quarter, the European covered bond market is in limbo and sentiment seems to be turning on growing unease about Spain. In the near term, bankers are looking to the European Central Bank for guidance on the covered bond purchase programme.