Covered Bonds

The Reserve Bank of New Zealand today published a consultation paper that proposes a legal framework for covered bonds, having worked on specific covered bond policy for over a year.

European regulators are poised to reverse their long standing disapproval of asset backed securities, ending favouritism towards covered bonds and providing a potential way out of banks’ funding nightmare next year.

Canadian Imperial Bank of Commerce priced the first benchmark covered bond in almost three weeks on Tuesday, and the first deal from the jurisdiction in over a month. Canadian banks are not exempt from offering larger premiums to ensure successful execution, but continue to find strong support for their product in a market largely closed to European buyers.

Commerzbank has moved to the head of a group of German banks looking to issue a structured covered bond next year. A cross-section of investors from the ABS, covered bond and credit segments are warming to the idea of a dual recourse bond that falls outside national covered bond laws, though much will depend on reassuring them over liquidity, refinancing risk and spread levels.

Syndicate officials believe a French or Dutch issuer is most likely to restart the covered bond market in January.

Stephane Bataille, head of syndicate & FIG origination at Landesbank Baden Württemberg in Stuttgart, is expected to leave the firm and join Commerzbank’s FIG origination team in Frankfurt next year. This is the latest in a long line of departures and illustrates the changing fortunes of the two German banks.

Syndicate officials believe a French or Dutch issuer is most likely to restart the covered bond market in January.

Covered bonds will continue to play a prominent part in investor portfolios next year, according to a survey by Natixis. More than 80% of investors also expressed interest in structured covered bonds, though buy-siders away from the survey reckon the level of demand may be overstated, as given the choice buyers will prefer traditional covered bonds.

Covered bonds have been less liquid than RMBS this year, new analysis by Bank of America Merrill Lynch shows.The controversial finding underscores the impression that European RMBS should become eligible for inclusion in Basel III’s Liquidity Coverage Ratio. The case for RMBS inclusion is further underscored by the fact that banks have few funding options, as the senior unsecured market remains practically closed just as heavy government guaranteed redemptions fall due next year.

SNS Bank has asked DZ Bank, Natixis, Rabobank and RBS to organise a series of investor meetings that will start on December 12.

Canadian Imperial Bank of Commerce has priced its first deal after leaving blackout, and the first deal from the jurisdiction in over a month. Canadian banks are not exempt from offering larger premiums to ensure successful execution but continue to find strong support for their product in a market largely closed to European buyers.

Markets stabilised on Tuesday morning following S&P’s announcement that it may cut sovereign ratings across the eurozone, ending three days of sovereign tightening. Overall the tone remains constructive, according to covered bond traders, with better buying in French and peripheral covered bonds. But with only a couple of weeks of trading to go before year end, and covered bond spreads not following sovereigns tighter, issuers are still most likely to wait for an opportunity in January.