Covered Bonds

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.

Danske Bank sold a Skr3bn (€340m) five year deal at 115bp over mid-swaps on Thursday, its first benchmark trade in the currency.

The European Covered Bond Council’s proposed Label Initiative, a quality stamp for the asset class, is still dividing opinion even as it starts to get off the ground. Bankers attending the ECBC’s plenary session in London on Thursday said that some issuers saw no benefit to the initiative and were refusing to absorb any costs associated with it. The project is nonetheless expected to go ahead, with arranging banks expected to bear the moderate costs.

The European Commission has changed Commerzbank’s state aid plan, telling it to wind down non-core assets in Eurohypo, in an acknowledgement of the difficulty lenders face when it comes to selling large assets in current market conditions. The demise of Eurohypo, formally one of the largest German covered bond issuers and a major advocate of the jumbo covered bond concept, marks the end of an era in the Pfandbrief market’s more recent history.

HSH Nordbank made a strong return to covered bonds on Thursday, drawing such strong demand — over 100 accounts participated in the €500m no-grow trade — that leads closed books after only 35 minutes.

Banks will be grateful for another funding route once senior unsecured costs start to rise again. Dual recourse bonds backed by loans to small and medium sized enterprises offer a neat solution. Following a series of privately placed deals, the market should soon be ready for the first public issue.

Norway’s Sparebank 1 Boligkreditt became the latest name to help dollar covered bond issuance continue its record breaking run this week, launching a five year trade on Thursday. Year to date supply in the currency had already surpassed the total sold in every year before 2010, though US buyers remain wary of Eurozone issuance.