Covered Bonds

Sweden’s Stadshypotek has priced a comfortably oversubscribed, upsized trade. Though in line with initial guidance, the plus 32bp print seemed ambitious. Nevertheless, the price and size clearly worked, proving that cash rich buyers are eager to digest fresh supply from top tier, rare names in core jurisdictions – something that Stadshypotek was well placed to take advantage of.

Demands by covered bond investors for more transparency from issuers are getting louder. They were reiterated at a plenary meeting of the European Covered Bond Council in Frankfurt last week, and onlookers say the call is becoming more determined.

Banque Populaire Caisse d’Epargne restarted benchmark issuance on Tuesday, launching the first euro denominated Obligations á l’Habitat. The inaugural Eu2bn deal was well received by a cash rich investor base that has had to make do with secondary market purchases since April 14. Though there was no further primary issuance, UniCredit Bank Austria and Sweden’s Stadshypotek mandated leads for three and five year deals respectively, to be launched in the near future.

Labelling and transparency dominated discussions at the plenary meeting of the European Covered Bond Council, held in Frankfurt on April 29 in cooperation with the European Central Bank. In the face of seemingly complacent issuers, investors remain steadfast in their demands for collateral transparency – sources familiar with the discussions said. And, with the ECB behind them, such demands should eventually be met.

The effect of a restructuring of Greek sovereign bonds on the public sector cover pools of German, French, and Luxembourg issuers would be manageable, according to Deutsche Bank research. Though bank credit quality would deteriorate because of non-cover pool exposure, it said, a restructuring of Greek, as well as Portuguese and Irish public sector assets could be accommodated.

After two weeks without benchmark issuance market participants are looking past the UK royal wedding and May Day holiday to a resumption of primary market activity on Tuesday. Syndicate officials were modest in their expectations however as, with peripheral markets effectively closed and some core names in blackout, prospective issuance from for core jurisdictions appears sparse.

Secondary trading has picked up pace in light of limited primary issuance. An attractive rates environment has ensured continued demand for long dated French paper, while selling has increased in peripheral covered bonds now flat to the government curve.

Covered bond legislation proposed by the Australian government would form a solid basis for issuance, said rating agency Fitch last Thursday. However, the agency warned that it lacks provisions for liquidity gaps, minimum over-collateralisation and transparency requirements.

Sentiment in the covered bond market remained constructive this week, despite the heightened concerns of a possible Greek restructuring, as many investors are cash-rich.