Covered Bonds

The Swedish government has issued a draft law that contains amendments to the country’s covered bond legislation that would allow a cover pool administrator to enter into third party refinancing. The change is aimed at achieving a more favourable assessment of Swedish covered bonds under Standard & Poor’s new rating methodology.

With only one publicly announced mandate for a euro issue outstanding, the market could this week experience the break that some bankers are saying it needs after last week’s peripheral sovereign spread widening.

Reported purchases under the European Central Bank’s covered bond programme rose by Eu1.291bn this week to Eu33.104bn this (Friday) morning, putting the ECB just Eu16m behind an assumed target path.

Canadian Imperial Bank of Commerce priced the first US-targeted benchmark covered bond in two-and-a-half years on Wednesday, a $2bn (Eu1.42bn/C$2.12bn) three year transaction that attracted more than $4bn of orders, and the deal is said to have generated enquiries from European issuers as to what is now feasible in the US.

Standard & Poor’s downgraded the first covered bond programme under its revised rating methodology yesterday (Thursday), cutting NIBC’s covered bonds from AAA to AA. The rating was withdrawn at NIBC’s request. Meanwhile S&P affirmed GCE Covered Bonds’ and Société Générale SCF’s programmes at AAA.

Fitch has completed a review of 109 covered bond programmes, applying its revised assumptions for treating liquidity risk in covered bonds. The implementation of the new criteria had a more limited impact on ratings than the rating agency initially expected, Fitch said yesterday (Wednesday).

Swedish Covered Bond Corporation took advantage of limited supply in the primary market this week, with many other issuers in blackout periods, to price a Eu1bn five year issue that extended its outstanding benchmark curve and coincides with a Eu1bn jumbo redemption next Monday (1 February).

GCE Covered Bonds, which yesterday (Tuesday) priced its second benchmark covered bond, will continue as an issuer until the BPCE group it is a part of has set up a société de financement de l’habitat (SFH) to operate under new French legislation, an official at GCE told The Cover.

Swedish Covered Bond Corporation is preparing to price at the tight end of revised guidance a Eu1bn five year issue that was more than twice subscribed, while CIBC met strong demand for the first benchmark covered bond aimed at US investors in two-and-a-half years.

Standard & Poor’s yesterday (Tuesday) downgraded Allied Irish Banks, Anglo-Irish Bank and Bank of Ireland after updating its credit loss assumptions for Irish banks and lowering its risk assessment of the country’s banking industry.

Aareal Bank yesterday (Monday) priced a Eu500m five year mortgage-backed Pfandbrief at 20bp over mid-swaps, tighter than any benchmark covered bond this year.

GCE Covered Bonds has closed the order books for a three year benchmark that will be priced at the tight end of revised guidance later today (Tuesday). Swedish Covered Bond Corporation could be the next issuer to follow, having announced a mandate for a five year deal.