Covered Bonds

As the market gears up for Standard & Poor’s revised swap criteria, which comes into effect from January 17, an analyst at Deutsche Bank warned that converging rating agency requirements will keep covered bond ratings under pressure this year.

After a very quiet December, market participants are not surprised to see a strong start to the primary market in the New Year, with one deal already priced and as many as seven others on the way.

Germany’s Münchener Hypothekenbank reopened the covered bond market on Monday, pricing a Eu1bn five year mortgage backed Pfandbrief at 10bp over mid swaps, the tight end of guidance, via leads Barclays, DZ Bank, LBBW, UniCredit and WGZ Bank.

CIF Euromortgage sold a Eu250m increase of an outstanding Eu700m June 2020 issue today (Monday), which leads BNP Paribas, HSBC and Natixis will price at 65bp over mid swaps the middle of guidance according to a syndicate official involved in the transaction.

Moody’s has placed on review for possible downgrade the covered bonds issued by six Greek banks, highlighting that timely payment indicators of the various programmes are “very improbable”.

Final Basel III rules released yesterday (Thursday) confirmed covered bonds as the only bank funding instrument eligible for liquidity buffers, but failed to confirm “strict knock out” criteria that could prevent certain bonds or segments from counting towards the buffers, according to Commerzbank analysts.

Caisse de Refinancement de l’Habitat yesterday (Thursday) priced a significantly upsized Eu500m increase of its Eu500m September 2022 issue at 67bp over mid swaps via sole lead HSBC.

Congressman Scott Garrett, the Republican politician who has been leading a push for covered bond legislation in the US, has been selected to serve as chairman of the capital markets subcommittee in the House of Representatives, an appointment that US lawyers and market observers cited as one of several grounds for optimism that legislation could be passed next year.

German 10-year Bunds are correcting slightly higher this (Friday) morning, but a long term trend of rising yields that has been in place since August remains intact. As a result, real money accounts are increasingly hitting their target returns –a driving factor behind a hugely upsized increase of a tap for Caisse de Refinancement de l’Habitat.

It’s official. Covered bonds are going Down Under with the Australian government this week finally giving the go-ahead for local banks to issue these hitherto banned mortgage-based securities.

Bank of Scotland, the issuing subsidiary of Lloyds Banking Group, has restructured as many as eight covered bonds in an exercise that could be a preliminary move ahead of issuing into the public market.

Financial institutions are likely to look to the covered bond market to roll upcoming government guaranteed maturities in 2011, MTN dealers said this week. However, sovereign risk continues to worry SSA issuers.