Covered Bonds

Although issuers in the pipeline remained in risk off mode on Wednesday, Caisse de Refinancement de l’Habitat provided some supply, tapping its February 2023. The tap was a rare bit of good news for the French market and suggested that there are investors looking for opportunities, despite the wider credit market volatility.

Fitch said on Wednesday that proposed UK ring-fencing rules would push banks to rely more on secured funding — and that senior unsecured would comprise a permanently lowered proportion of bank funding.

Italian covered bonds have widened further following Standard & Poor’s downgrade of the sovereign’s credit rating from A+ to A on Tuesday but the covered bonds issued by UniCredit and Intesa Sanpaolo have outperformed BTPs, although in a very illiquid market.

European bond markets reacted poorly to the no-committal anodyne ECOFIN meeting in Poland and the Berlin election result over the week end with the Bund yield predictably gapping lower on Monday. Credit markets followed suit with the iTraxx Senior Financials ending +24bp at 286bp and the SovX W Europe finishing +13bp at 338bp. But the moves lacked conviction and the jury is out as to whether the primary market will remain closed.

A selection of pictures taken at this year's The Cover awards ceremony held in Barcelona.

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

A CROSS-section of six different types of investor, along with bankers from Crédit Agricole CIB’s trading, syndicate and research desks gathered to discuss the changing face of the covered bond market. The roundtable poignantly captured the mood of the market, just as the European Central Bank intervened to buy Italian and Spanish government bonds.

Cédulas and multi-cédulas continue to fall under the gaze of rating agencies, with Moody’s putting Banco CAM’s cédulas programmes on review for downgrade and Fitch placing two of Banco de Valencia’s multi-cédulas hipotecarias on rating watch negative. The downgrades come as bankers complain that rating agencies have overlooked certain strengths in these deals.

ABS analysts at Deutsche Bank argue there is better value in German conduit CMBS compared to Pfandbriefe. A research note published Monday said that certain senior AAA rated issues from high quality deals are priced at a level implying they are almost 30 times more risky than covered bonds, despite having comparable leverage.

After the optimism of Barcelona, bankers have returned to their desks this week in a very glum mood. Renewed volatility in the sovereign and bank finance markets has undermined the little confidence on show at the Covered Bond Conference in Spain last week. The secondary covered bond market is practically closed and, though there are plenty of deals in the pipeline, the primary market is on hold — pending a more stable environment.

The National Bank of Belgium has made covered bond legislation a priority, bringing the law a step closer to enactment, according to bankers involved. A legislative framework will provide clarity on post-insolvency situation and cheaper funding for the country’s banks but it is still not clear how politicians will treat legislation that may raise the cost of protecting depositors.