Covered Bonds

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.

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.