Covered Bonds

Moody’s downgraded the long-term debt and deposit ratings of Bank of Cyprus and Marfin Popular Bank on Tuesday, and placed them on review for further downgrade.

The Australian Prudential Regulation Authority (Apra) outlined its proposals for a new prudential standard on regulations for Australian covered bond issuers on Tuesday.

While Westpac and Commonwealth Bank of Australia headed to the US on Monday to market debut covered bonds, ANZ has started meeting investors in Europe, after finishing a US roadshow last week.

The covered bond market waited in vain on Tuesday for the start of ECB purchase programme (CBPP.2) buying in the secondary market. Despite moderate sovereign tightening, peripheral covered bond spreads continued to trade well inside government bonds, particularly in Italy where it is increasingly doubtful that issuers will be able to bring benchmark deals against outstanding curves.

Westpac and Commonwealth Bank of Australia (CBA) started US roadshows on Monday and will go into investor meetings with expected/provisional triple-A ratings secured for their programmes. All four Australian banks with covered bond programmes now have provisional triple-A ratings from Moody’s and Fitch. But National Australia Bank (NAB) is winning the race to issue Australia’s first covered bond, after completing its US and European roadshow last week and mandating for a dollar transaction on Friday.

News of the ECB’s latest covered bond purchase programme has failed to move secondary spreads, analysts and syndicate officials told The Cover on Monday. Meanwhile the situation in peripheral jurisdictions continues to deteriorate, making the programme’s success all the more contingent upon concrete political resolution in the individual countries, and Europe as a whole.

In what it told The Cover was an "intentional" ambiguity, the European Central Bank has failed to spell out how it will deploy its second covered bond purchase programme. Nonetheless, bankers have welcomed the more accommodating criteria this time round — it is willing to buy smaller and longer deals with lower ratings — and expect it to buy more primary paper than before too.

The UK’s Co-operative bank has sidestepped European turmoil and swap costs by choosing to bring its inaugural 10 year transaction in sterling. After finishing a roadshow earlier in the week the issuer sold its debut benchmark at the tight end of guidance against an improved market backdrop, with an attractive new issue premium.

French guaranteed home loans, which make up the majority of the country’s housing loan market, could potentially face systemic pressure given provision is made by less than a handful of private companies. But Moody’s says such risks have been factored into its analysis, and in any case, should any of the insurers get into difficulty, the state would almost certainly step in to support the market.

Euro benchmark covered bond issuance since August fell by a third compared with the same period last year, but a look at the redemption calendar for this quarter and the first quarter of 2012 shows that funding pressures will not wait for Europe to fix itself. The new ECB purchase programme (see separate story) may help some borrowers plug funding holes, but with only €40bn at its disposal, not all issuers will be able to rely on it for refinancing.

In what it told EuroWeek was an "intentional" ambiguity, the European Central Bank has failed to spell out how it will deploy its second covered bond purchase programme.

The covered bond market has not reacted to the European Central Bank’s announcement detailing the second covered bond purchase programme (CBPP.2). A spokesperson for the ECB told The Cover that it was intentional not to respond to the most crucial question that the market had wanted answered.