Covered Bonds

On Wednesday the Australian Treasury announced that it has received ten formal submissions in response to its exposure draft legislation, the Banking Amendment Covered Bonds Bill 2011.

After more than a week without benchmark euro issuance, three such deals were launched from core Europe on Thursday, as Eurohypo and Bayern LB came to market at the short end of the curve, while CIF Euromortage opted for a long dated transaction.

Canada’s DBRS rating agency has published a review on the Canadian government’s covered bond consultation paper titled: no impact on Canadian bank ratings. Though there have been a large number of covered bond deals it says that none of the banks are close to the hitting the existing limit of 4% of total assets.

CIF Euromortgage mandated for, and then opened, a long 10 year euro trade through BNP Paribas, Deutsche Bank, DZ Bank, Natixis and Nomura. The leads will price the benchmark Obligations Foncièrs later on Thursday, having gone out with guidance of the high 70s over mid-swaps.

Eurohypo will price a benchmark mortgage backed Pfandbrief later on Thursday, having attracted three times as many investors as its last trade, for a transaction three times the size.

Société Générale is expected to finish roadshowing its new covered bond programme on Friday. Given robust market conditions, a launch could follow as soon as next week. The programme structure is unusual for being backed by RMBS, as opposed to mortgage loans. In this sense it is similar to CIF Euromortgage’s long standing programme and Intesa’s Eu20bn OBG programme launched last year.

Santander priced its first UK RMBS deal of the year on Wednesday. The transaction was notable for its size, strong order book, wide distribution and competitive pricing. The RMBS suggests that a welcome degree of funding equilibrium may slowly be returning to these two key wholesale mortgage funding markets.

Bayerische Landesbank began taking indications of interest for a benchmark public sector Pfandbrief, expected to be priced on Thursday, which could end the mysterious drought in the covered market.

Secondary market activity has been focused on Spain lately with end account selling noted in multi-cédulas and single names which, among others, have included BBVA. Though it’s technically possible for the issuer to bring a deal flat to the underlying government, some bankers think that the funding window may have passed, albeit temporarily.

Spain’s Caja Vital Kutxa brought an inaugural covered bond issue to market on Monday, launching a Eu200m no grow trade through joint leads Bilbao Vizcaya Argentaria and Natixis.

Fitch placed 25 classes of multi-issuer cédulas hipotecárias on rating watch negative on Monday, because cédulas hipotecárias issued by Caja de Ahorros del Mediterráneo (CAM) form part of their collateral.

The Canadian Department of Finance’s consultative paper outlining a legislative proposal for a covered bond legal framework “would be credit positive for investors,” said Moody’s. However, because overcollateralisation is capped, the issuer’s rating would have to be above a certain threshold. Moreover, because only federally regulated institutions would benefit, other issuers such as CCDQ would be left out in the cold.