Covered Bonds

Benchmark covered bond supply in 2011 is likely to be close to 2010 volumes, according to covered bond analysts, with no analysis forecasting more than a Eu20bn rise or fall versus 2010 levels.

The banking sector has a Eu2.89tr funding gap that it must fill by the end of 2018, said the Basel Committee on Banking Supervision this week. The finding was released in the committee’s long-awaited announcement of its full liquidity and capital rules on Thursday.

Today’s release of the final version of Basel III has been broadly welcomed by covered bond specialists, who note that there are no major changes compared to the last draft which has always been favourable to covered bonds, which Mauricio Noé, head of covered and senior bond origination at Deutsche bank, said are “the only bank funding instrument in the liquidity buffers.”

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

Fitch today (Thursday) downgraded public sector covered bonds issued by Portugal’s Caixa Geral de Depósitos from AA+ to AA, because the refinancing costs for public sector cover assets are likely to rise in Portugal, based on a review of the sector that it is currently undertaking.

Benchmark covered bond supply in 2011 is likely to be close to 2010 volumes, according to covered bond analysts, with no analysis forecasting more than a Eu20bn rise or fall relative to 2010 levels.

In brief: The Cypriot House of Representatives on Tuesday approved a bill allowing for the issuance of covered bonds.

Australian banks will be able to tap a new source of funding next year after the government said it would let domestic lenders sell covered bonds. Big and small banks alike are now considering issuing bonds in the format — and adjusting to a move that has changed the landscape of Australian bank financing for good.

The recent Australian government’s announcement that it plans to lift a ban on covered bond issuance, while hugely welcome, has led to some speculation as to what form the prospective structure might take.

Fitch yesterday (Tuesday) downgraded Bank of Ireland’s UK residential mortgage covered bond programme and cut Irish covered bonds issued by AIB Mortgage Bank and EBS Mortgage Finance.

A final Nykredit auction on Monday concluded end-of-year auctions of interest-reset mortgage bonds held by Denmark’s mortgage credit institutions for this year. Investor interest was lower than last year, but borrowers look set to benefit from mortgage rates that will be reset to low levels compared with previous years, according to Danske Bank analysts.

Following its redraft in July, the final version of the Basel III rules is expected to be released later this week. Bankers do not expect too many major surprises but, adhering to liquidity buffers is likely to be a challenge in some parts of the world – particularly in Australia.