Covered Bonds

Bankers involved in an inaugural covered bond for Korea Housing Finance Corporation have said that choppy markets last week explained the pricing of the new issue, which some market participants suggested did not reflect the extra security the structure offered investors.

These charts and tables provide an overview of covered bond issuance from January-June 2010, breaking down total supply by country, currency, and maturity, and comparing this year's volumes with those of previous months and years.

With almost half of June’s new covered bond issues falling short of the Eu1bn jumbo requirement, the implications of Eu500m-plus issues are being grappled with by all sides of the market. Most market participants have adopted a constructive attitude toward the development, but with some investors wary of issuers’ motives, there appears to be near-unanimity on only one issue: the term “jumbolino” is not fit for purpose.

Standard & Poor’s has affirmed at AAA mortgage-backed covered bonds issued from Danske Bank’s domestic cover pool and removed them from negative review following the application of its revised rating criteria.

The Eurosystem bought 10.8% of issuance eligible for the European Central Bank’s covered bond purchase programme (CBPP) during its duration, according to a final monthly report on the programme released yesterday (Thursday). Meanwhile, Jean-Claude Trichet gave an ambiguous answer when asked whether covered bonds could be bought under the Securities Markets Programme.

WestLB will drop its DBRS and Standard & Poor’s ratings and replace them with Fitch ratings, it announced yesterday (Thursday).

Korea Housing Finance Corporation priced a $500m five year debut covered bond at the tight end of guidance in New York trading hours yesterday (Thursday) after attracting $2.7bn of orders and placing half its deal with US accounts.

Landesbank Baden-Württemberg priced a $500m three year benchmark covered bond in the middle of its 70bp over mid-swaps area guidance yesterday (Thursday). Some market participants questioned the economics of the transaction, but LBBW’s head of funding stressed the strategic value of the Eurodollar issue.

The European Commission has introduced a more favourable spread risk treatment of covered bonds under Solvency II in final technical specifications sent to the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) on Monday.

Korea Housing Finance Corporation is set to price a benchmark dollar covered bond later today (Thursday) – a long-anticipated deal that will be only the second covered bond from Asia.

Landesbank Baden-Württemberg is launching the first Eurodollar benchmark covered bond in more than two-and-a-half years, targeting a three year public sector-backed issue of at least $500m (Eu397m), with European and Asian accounts the main audience.

Moody’s has downgraded Marfin Egnatia Bank from Baa2 to Baa3 because of a weakened ability of its parent to provide support if required. However, the ratings are on positive outlook.