Covered Bonds

During the crisis, the Nordic covered bond market firmly established its credentials as an anchor of stability, with spreads holding firm and borrowers maintaining their access to the market. Since then, continued strong demand for exposure to the region has supported a further narrowing of spreads relative to other core European covered bonds. In the EuroWeek/Natixis Nordic covered bond roundtable, a number of leading issuers from the region discussed the underlying reasons for this strength, and the outlook for the market.

New regulation is coming thick and fast, with Basel III set to re-order the fabric of the capital markets. Right now, covered bonds are the darlings of the rule-makers, and in the brave new Basel-ed world, could be the bank funding instrument of choice — unless asset encumbrance worries get the better of the authorities. Owen Sanderson looks at the regulatory threats and opportunities.

Upheaval in the Middle East is sparking Saudi Arabia’s leaders into action over its housing market. In Brazil demand for property is skyrocketing. But it is Mexico that is leading the way in developing new covered bond markets, as Phil Moore reports.

While Coventry Building Society is expected to bring an inaugural sterling deal this week, via leads BNP Paribas and Barclays Capital, the majority of regular issuers may decide to wait until after Easter.

US covered bond legislation is creeping ever closer, despite not having universal support. Its backers hope President Obama will sign the act into law before the end of the year. Bill Thornhill reports.

Senior unsecured debt has long been the workhorse of bank funding programmes. But who wants a workhorse when you can have a thoroughbred? Nick Jacob reports on the changing balance in wholesale bank borrowing.

Moody’s cut the covered bond ratings of seven Portuguese banks on Friday following downgrades of the issuers’ senior unsecured ratings on April 6, which followed a downgrade of Portugal’s sovereign debt rating the day before.

Abbey National was the sole benchmark covered bond issuer on Thursday, becoming the first repeat visitor to the sterling space this year, though other names are also expected to return. The comfortably oversubscribed £1.25bn 10 year print enjoyed strong participation from foreign investors, yet another encouraging sign of the sterling market’s growth.

The asset backed security market showed signs of recapturing some of its old swagger this week, playing host to a wide range of transactions and preparing to take down the largest volumes since the onset of the credit crisis in 2007.

Turkey’s Sekerbank is set to launch the first Turkish covered bond. Although it is backed by Turkish lira SME loans, the deal is nevertheless a genuine dual recourse instrument that is enshrined within the Turkish law. It is not only the first deal to be issued under the Capital Markets Board of Turkey law, but also the first secured deal to be backed by cashflows from existing local currency assets, rather than future receivables.

Fears of nasty surprises within Portuguese banks played havoc with the secondary market for the country’s covered bonds this week. Offered spreads were broadly up 80bp from the close of last week, but there was no bid seen at all.

In a further demonstration of the domestic bid for sterling denominated deals, three such transactions were mandated this week. Yorkshire Building Society priced the shortest dated sterling issue of the year on Tuesday, Abbey National followed with a 10 year on Thursday, and Coventry Building Society mandated for an inaugural sterling issue, expected next week.