Covered Bonds

Disparities between Moody’s and Standard & Poor’s in their assessment of loss risks in cover pools should dissuade investors from relying on just one rating agency for an understanding of a pool’s underlying strength, said Commerzbank research this week. And with the sub triple A covered bond market set to grow, investors may already be more inclined to scrutinise ratings more closely, and rather than treat them as a mark of quality, rely more on their own analysis instead.

Bail-in fears and the imminent loss of the last part of the senior unsecured market still open to German mortgage banks have driven them to the brink of issuing a once-unthinkable form of debt — structured covered bonds. The idea could work given better asset liability matching will lower refinancing risk and given that the collateral will be 100% German.

Secondary markets broadly remain under pressure, though there are cracks of light appearing here and there. The long end of the French market seems to be stabilising, there have been some buyers of Cédulas and there is still a smattering of interest in selective Scandinavian names. But the outlook remains dim and relative value against other sectors suggests covered bonds are expensive.

Landshypotek issued the first Swiss franc fixed rate mid-term covered bond in two months as investors began to show appetite for longer maturities and fixed rate paper. The borrower priced a Sfr200m 1.5% seven year note, a larger deal than was originally launched.

Denmark’s Nykredit has finished a 12 day auction to refinance its adjustable rate mortgages, selling a larger volume at cheaper levels than last year. Nykredit’s decision to pool all ARMs into a new capital centre, following Moody’s concerns that these loans represent a source of greater refinancing risk, clearly paid off.

Bail-in fears and the imminent loss of the last part of the senior unsecured market still open to German mortgage banks have driven them to the brink of issuing a once-unthinkable form of debt — structured covered bonds.

The final version of the Australian Government’s Banking Amendment (Covered Bonds) Bill 2011, introduced on September 15, contained less stringent requirements on the eligibility of assets in the cover pool and an amended role for the cover pool monitor, though it remains in line with a draft proposal released in June.

BNP Paribas and Natixis took the headline awards at the EuroWeek and The Cover Covered Bond Awards 2011, which were presented at our fifth annual dinner at the Casa Llotja de Mar in Barcelona last Thursday (September 15).

Although issuers in the covered bond pipeline remained in risk-off mode this week, Caisse de Refinancement de l’Habitat provided some supply in a rare bit of good news for the French market. However, it was not enough to cajole other issuers into action.

Denmark’s Nykredit has finished a 12 day auction to refinance its adjustable rate mortgages, selling a larger volume at cheaper levels than last year. Nykredit’s decision to pool all ARMs into a new capital centre, following Moody’s concerns that these loans represent a source of greater refinancing risk, clearly paid off.

Italian CDS reached a record wide on Thursday morning as confidence in the country’s credit health and political response to the crisis decline. Covered bond analysts have altered their stance on Italian covered bonds, with a stagnant housing market, weak economic prospects and a lack of political consensus making the outlook increasingly negative.