Covered Bonds

Hopes that the US covered bond bill would be passed as soon as this year were dashed last week after it emerged that the US Senate approved the Jumpstart Our Business Startups Act – but crucially without an amendment that included the covered bond bill.

Ignoring market wobbles and a hint of unease around the future of Spain and Portugal, FIG borrowers had their eyes on the long game this week. They have been careful not to lock in large amounts of funding at what could become expensive levels, giving rise to the impression that the softer tone is a short term technical correction.

Investor appetite for Lloyds, the UK bank, appears to know no bounds. After issuing an ABS CLO and a dollar denominated senior unsecured deal this week, the borrower came back for its third public covered bond deal and it second ultra-long dated sterling deal of the year.

WL Bank priced its first deal since May last year and the first 10 year Pfandbrief of the year. Despite coming at a tight spread, relative to other covered bond sectors, it sold out within an hour and was heavily oversubscribed.

Investor appetite for Lloyds, the UK bank, appears to know no bounds. After issuing an ABS CLO and a dollar denominated senior unsecured deal this week, the borrower came back for its third public covered bond deal and it second ultra-long dated sterling deal of the year.

Waning euro primary covered bond issuance has been counterbalanced by a pick-up in overseas markets with Bank of Nova Scotia and Swedbank pricing dollar benchmarks and Australia and New Zealand Bank pricing its inaugural Aussie dollar benchmark at the end of last week.

Portugal’s Caixa Geral de Depósitos (CGD) bought back €908m of its own covered bonds this week, in a deal that brought in 29% of the outstanding paper.

Two new issues from opposite ends of the credit spectrum revived the supply starved euro covered bond market this week.

The primary market kept up momentum on Thursday as WL Bank priced its €500m 10 year Pfandbrief and Lloyds opened books for a sterling 15 year deal, with both transactions well received. Banco Popular Espanol’s deal has held in, despite underlying concerns about the periphery markets — and Spain in particular.

The European Central Bank is unlikely to be considering winding up its second covered bond programme, bankers have told The Cover. The ECB has nothing to gain from making any public statement, covered bond bankers said, adding that it would be well advised to keep its powder dry as buoyant conditions could change before the programme expires.

Banco Popular Espanol has opened and closed books for a €500m five year Cédulas. The small size of the transaction alongside a general scarcity of supply has ensured its success, despite the long tenor and absence of a new issue premium.

Chilean banks could soon be able to issue a new type of “covered bond style” mortgage bond under a proposed framework from the country’s central bank and financial regulator. The bonds would be similar to covered bonds, according to a consultation paper jointly published by the two institutions. However, the new instrument would lack key features such as ring-fencing and dual recourse, The Cover understands.