Covered Bonds

Axa Bank Europe SCF launched its third and largest euro benchmark covered bond on Tuesday, pricing a €1bn trade at the tight end of guidance. Investors seemed untroubled by the rare RMBS collateral, allowing Axa to follow recent French trades in offering a minimal new issue concession.

Though senior unsecured issuance has picked up this year there are no guarantees that the market can be sustained beyond 2014, when the repo financing from the European Central Bank’s long term refinancing operation expires. Senior unsecured could soon grind to a halt or became prohibitively expensive, and many issuers may return to covered bonds for relief. But banks cannot live on secured bonds alone.

ASB Finance New Zealand joined the caravan of inaugural transactions from Australia’s largest banks this year when it launched its debut Swiss franc transaction on Monday — a Sfr150m minimum 6-1/2 year fixed rate covered bond.

The covered bond market is primed for supply, with syndicate bankers expecting several trades this week and at least one announcement to hit screens this Monday afternoon. Though mandates are otherwise scarce, the range of products and currencies available to issuers means they can afford to launch at short notice, and keep their options open.

Moody’s provided a timely reminder that all is not right in the state of Spain on Monday. Following a 41% year-on-year decline in mortgage lending, over-collateralisation levels have eroded, it said. 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.

Investors are fed up with focusing too much on the strength of issuing banks to value covered bonds. Now they are demanding more details about the underlying assets. But baring all is not necessarily the solution for borrowers either.

ASB Finance New Zealand joined the caravan of inaugural transactions from Australia’s largest banks this year when it launched its debut Swiss franc transaction on Monday — a Sfr150m minimum 6-1/2 year fixed rate covered bond.

Norway’s Sparebank 1 Boligkreditt became the third European issuer to bring a five year dollar deal in the last two weeks, with all three deals offering the same spread. Also in North America, the Canadian government released its 2012 budget, though details of prospective covered bond legislation remain scarce.