Covered Bonds

Commonwealth Bank of Australia is racing National Bank of Australia to bring the country’s first covered bond, following enactment of Australia’s new law.

Coventry Building Society made its euro denominated debut on Monday, pre-empting weak market conditions that prevented issuance for the rest of the week with a €650m three year deal. The UK issuer ensured that recent covered bond supply continues to be dominated by countries that will not benefit directly from the ECB purchase programme.

The official announcement on Thursday of a joint venture between Caisse des Dépôts and La Banque Postale, which have both taken stakes in Dexia Municipal Agency, is credit positive for the issuing entity’s Obligations Foncières and should help maintain their triple-A ratings, bankers said.

The official announcement on Thursday of a joint venture between Caisse des Depots and La Banque Postale, which have both taken stakes in Dexia Municipal Agency, is credit positive for the issuing entity’s Obligations Foncières and should help maintain their triple-A ratings, bankers said.

Though there has been a perceptible change in French covered bond flows in the last couple of days following a tightening in the spread to government bonds, market trading remains stable. Flows are broadly balanced, though there are slightly better sellers in core markets. DexMA is marginally better bid in the wake of Thursday morning’s announcement on Dexia’s restructuring and cédulas are unchanged after Moody’s downgrades.

Public sector backed Cédulas became the latest victim of sweeping rating cuts on Thursday as Moody’s took negative action on 10 programmes after cutting the Spanish sovereign on Monday. The cuts bring the total number of negative rating actions taken on covered bonds in the last six weeks to around 40, according to Deutsche Bank analysts.

Fitch said on Wednesday that the shrinking pool of highly-rated banks to provide swaps in structured finance and covered bond deals could put pressure on deals, and add concentration risk to the financial system.

First Sakrileg, now Sacrilegio. Covered bond purists have had an unsettling few weeks. The cry for structured covered bonds is not only getting louder but has moved across the covered bond bastion of Germany into Italy.

European borrowers backed off from issuance on Wednesday after French government bond spreads reached 16-year wides versus Germany. UniCredit Bank Austria had hoped to bring a deal after investor meetings in Helsinki and Copenhagen on Tuesday, but leads unanimously agreed that market conditions were not suitable and they will wait to see the result of weekend headlines following the EU summit.

Australia’s largest lender, Commonwealth Bank of Australia (CBA), will hold talks with investors ahead of its debut covered bond, it said on Wednesday. The country’s issuers are lining up to make their first forays into covered bonds after domestic legislation received Royal Assent this week.

Despite a widening yield spread between France and Germany, French covered bonds continue to perform well, bolstered by support from domestic investors. French issuers, prescient of their 2012 funding needs and the risk to their country’s top rating, could be tempted to return to the markets with a benchmark before the end of the month.