Covered Bonds

Moody’s and S&P have assigned preliminary triple-A credit ratings to BPCE Home Loans' class A1, A2, and A3 notes. The ratings come ahead of the March 28 regulatory sign-off by the Autorité de Contrôle Prudentiel (ACP) of all existing structured covered bond applications into the new Ucits-compliant Obligations de Financement à l’Habitat framework.

After a February without Canadian issuance, Caisse Centrale Desjardins du Quebec (CCDQ) launched a $1bn five year transaction on Thursday, the second inaugural deal from that jurisdiction this year.

With primary issuance faltering, the secondary market demand for peripheral countries has increased. Spain has been the principal beneficiary of this trend. Commerzbank analysts report that various single-name cédulas have tightened by around 50bp since mid-January but traders say tightening for issues like BBVA’s three-year has been much more, in the order of 75bp (from a 225bp launch spread). Though there is ongoing interest in other high yielding Spanish names, broader market factors, affecting cédulas hipotecárias, are unfavourable.

US dollar denominated covered bond issuance is set for growth, as demand is far outpacing supply, regardless of whether a US law is put a law in place, and European issuers are lining up deals for launch. Funding executives from many institutions explained their strategies at the 3rd Euromoney US Covered Bond Investor Forum on Wednesday this week.

Over 400 people congregated at The Pierre hotel in New York this week for the third Euromoney US covered bond investor forum.

The threat of forced sales from Japan is hanging heavily over the sovereign, supranational and agency sector, bankers warned at the end of a sobering week for all those involved in international capital markets.

Despite widespread market volatility and risk aversion, the covered market remained open this week, although dealflow was slower than usual.

The absence of primary flow has resulted in a better bid for higher yielding secondary paper. A few large orders have driven BBVA three year paper in by as much at 75bp from launch levels and, with the spread to second and third tier Spanish banks widening, demand has moved down the credit curve. Despite event risk over Japan, there is talk that a French and Spanish bank, not seen this year, could be poised to issue.

Lloyds Banking Group is aiming to tap a core of demand that will not buy master trusts with its new static pool UK RMBS, Headingley 2011-1, but will continue using its other funding avenues – meaning the Permanent and Arkle master trusts.

JP Morgan and Royal Bank of Scotland have closed books on Skipton Building Society’s Darrowby No1 Funding, a UK prime RMBS. The long four year piece was priced broadly in line with UK covered bonds launched earlier this year, albeit its duration was shorter.

Around 400 investors, issuers and bankers congregated at The Pierre hotel in New York this week for the third Euromoney US covered bond investor forum. The conference got off to an auspicious start, held just a week after the US Covered Bond Act 2011 was introduced in the House of Representatives. On the same day, Senator Charles Schumer announced that he would introduce legislation in the Senate.