Covered Bonds

Bank of Nova Scotia on Tuesday printed a $2bn 2.15% five year deal, continuing a recent trend of non-European issuers and markets providing primary covered bond supply.

Moody’s placed two Greek covered bond programmes on review for downgrade on Wednesday; EFG Eurobank Ergasias’s second covered bond programme and National Bank of Greece’s global covered bond programme, both rated Ba3. The rating agency said the review followed its downgrade of the Greek sovereign on Monday and a review on the issuer ratings.

Peripheral sovereign bonds are once again heading towards their recent widest spread levels but covered bonds, as usual, are lagging the move. Real money buying of peripheral covered bonds has been at levels 60bp through the government in some cases. Volumes are small, however, and bid offer spreads are wide as concerns around volatility continue to weigh in on sentiment.

A trio of Swiss franc deals has been the sum total of European primary market activity in the covered bond space so far this week. DnB NOR Bank, Vorarlberger Landes-und Hypothekenbank and Royal Bank of Canada brought issuance totalling Sfr375m (€328m). Vorarlberger Landes-und Hypothekenbank and DnB NOR Bank came to market on Wednesday, with deals of Sfr125m and Sfr175m respectively.

DnB NOR Bank outshone all other Swiss franc covered bond issues this week with an unexpectedly large Sfr175m 5-1/2 year note issued on Wednesday, despite continuing US and European volatility. On the same day, Vorarlberger Landes-und Hypothekenbank also managed to price a big transaction, a Sfr125 two year FRN covered bond.

Proposals outlined in CRD IV will make the covered bond market more dependent on rating agencies through a direct link between bond ratings and capital requirements, according to DZ Bank research.

Turkey’s Sekerbank is poised to close the first ever Turkish covered bond and the first SME-backed covered bond globally, using a structure that incorporates ABS features.

Bank of Nova Scotia on Tuesday printed a $2bn 2.15% five year deal, continuing a recent trend of non-European issuers and markets providing primary covered bond supply.

Compliance departments, legal advisors and syndicate bankers, under the auspices of the International Capital Market Association, could soon unveil a set of new market practices to redefine deal execution.

Peripheral covered bonds lagged widening sovereign debt in the secondary market on Wednesday morning, which was triggered by the German finance minister’s warning that the bond buyback programme needed limits. Despite the comment, some traders reported a surprisingly constructive tone, especially when compared with recent weeks. The closure of the European primary market did not however preclude Canada’s Bank of Nova Scotia from issuing a US dollar benchmark which, by virtue of the strong order book, was increased and priced at the tight end of the guidance range.

Turkey’s Sekerbank on Tuesday partially closed on series one to three of its TL800m (€335m) covered bond programme. The transaction is the first covered bond out of Turkey and the first SME-backed covered bond globally.

Lloyds Banking Group’s latest RMBS proved the resilience of US dollar demand for European triple-A rated residential mortgage backed product.