Covered Bonds

Despite widespread market volatility and risk aversion, the covered market has remained active, though distinctly muted. Berlin Hannoversche Hypothekenbank sold a mortgage backed jumbo Pfandbrief transaction on Tuesday, and on Wednesday taps from French issuers CM-CIC and CRH were launched.

Uncertainty as to the full effect of Japan’s earthquake has prompted widespread risk aversion among investors, and allowed Berlin Hannoversche Hypothekenbank to have the market to itself on Tuesday.

Though primary market activity remains muted, the pipeline continues to grow despite headline risk. A string of mandates for US dollar deals are expected, along with a sterling transaction from Barclays.

Although activity in the covered bond market has been muted so far on Monday, the mood is buoyant following the weekend EU mini summit, which included an expansion of the size of the EFSF. In addition the fund will be able to participate in the primary sovereign market. On the other hand news from Japan has been disheartening.

Fitch expects its Covered Bonds Counterparty Criteria, which includes new amendments, “will have an immediate effect on a limited number of covered bond ratings”. Most programmes, and especially those that use internal counterparties, will only be affected if the issuer's rating deteriorates by several notches, Fitch said when it released the criteria on Monday.

Canadian Imperial Bank of Commerce (CIBC) launched and priced an A$700m five year deal, its second Kangaroo and 12th covered bond, last Friday. The 6.25% March 2016 came through joint leads CBA, HSBC and UBS and was priced in line with guidance at 74bp over the local swaps benchmark.

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Caisse de Refinancement del'Habitat on Friday morning priced a Eu400m tap in an exercise that showed investor appetite for short-dated core issuance after a week dominated by periphery supply which was on the verge of investor push-back. Books were only open for a few minutes, and for the first time in the borrower’s history, it priced in line with BNP Paribas.

US covered bond legislation could move a step closer today as the House subcommittee on capital markets and GSEs hears testimony from a range of experts and lobbyists, including names well-known in the European market.