Covered Bonds

Compagnie de Financement Foncier yesterday (Tuesday) sold a $1.8bn (Eu1.4bn) two year dual tranche 144A issue, its second US targeted dollar benchmark covered bond this year and the first to be launched off a new US MTN programme.

Earlier this week we discussed the implications of the rise of sizeable but sub-Eu1bn issuance on the covered bond market. Today we invite comment on the potential impact of these deals on the way in which we reflect and analyse the market, not least in league tables.

Fitch yesterday (Tuesday) downgraded the long term rating of Banco Popular Español from AA- to A, on stable outlook, because of deterioration in the bank’s asset quality and its effect on operating profitability.

Fitch yesterday (Monday) downgraded the long term rating of HSH Nordbank from A to A-, and left it on negative review, in expectation of a reduction in ownership by Hamburg and Schleswig-Holstein.

Mortgage-backed securities will remain eligible as collateral for covered bonds, albeit subject to new conditions, after the European Parliament passed amendments to the Capital Requirements Directive. An 11.25% loss given default value for covered bonds has meanwhile been cemented.

Ultimately, it was not to be. Der Pfußball deflated even before a Spaniard had been kicked in anger, and in the final Dutch covered bonds proved less than totaal. But who is this manager who has taken cédulas tiki-taka to the heights of the World Covered Bond Council?

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.