Currencies

The wave of spread compression triggered by Thursday’s CBPP3 announcement is driving covered bond funding costs towards the TLTRO level across the periphery, according to analysis by Crédit Agricole’s covered bond research team in a note published on Friday.

Belfius Bank was set to price its first public sector-backed Pandbrieven and the first under the Belgian covered bond law on Monday. Though larger than usual, the deal was comfortably oversubscribed and was expected to price with no new issue premium.

Sub-investment grade ABS and covered bonds will be on the European Central Bank’s shopping list when it begins the private sector purchase programme it hopes will revive real economy lending this month. But stakeholders in both markets remain unconvinced of the size the ECB can achieve and many now see the move as a mere stepping stone to full-blown quantitative easing.

Lars Overby, head of credit, market and operational risk policy unit at the European Banking Authority, in discussion with Bill Thornhill, editor of The Cover, about the challenges facing harmonisation of the asset class.

The European Central Bank’s purchases of ABS and covered bonds may start next month and last four years.

Harmonising covered bond standards tends to make eyes glaze over. The myriad of different regimes and labyrinth of technicalities involved can seem baffling and trivial. But it would be a mistake to believe the project is an open-ended soft option that will never really happen. Harmonisation will materialise and progress will be monitored, suggesting everyone needs to be up to speed.

Austrian lender Hypo Tyrol issued its first publicly distributed deal on Wednesday, pricing a sub benchmark sized €300m public sector Pfandbrief. The transaction’s smaller than usual size meant it was not eligible for the covered bond indices, which deterred large investors. However, investors were compensated for the less liquid size with a wider than usual spread.

Arnaud-Guilhem Lamy, a portfolio manager within the euro sovereign and aggregate fixed income team at BNP Paribas Investment Partners (AuM: €32.5bn), speaks to The Cover in a podcast interview about how he is adapting his investment strategy in response to the European Central Bank’s (ECB) third covered bond purchase programme (CBPP3).

Several covered bond issuers have been marketing deals and are ready to launch, but they are unlikely to press ahead until next week at the earliest. In the meantime, they will be closely watching markets on Thursday when the European Central Bank governor Mario Draghi is expected to reveal details of the third covered bond purchase programme (CBPP3).

Alexander Froschauer, head of German fixed income Germany at Axa Investment Managers (covered bond AuM: €70-€80bn), speaks to The Cover in a podcast interview about the dual challenge of investment and asset liability management in the current fixed income environment.

Andy Jobst, a senior economist in the European department at the International Monetary Fund, speaks to The Cover in a podcast interview about the future of covered bonds in the European capital markets.

The Swedish Covered Bond Corporation (SBAB) was set to issue a €1bn deal at a historically tight level of 1bp over mid-swaps on a comfortably oversubscribed book on Tuesday. Although the issuer has been out of the market for three years and is considered a solid credit, the deal lacked some of the sparkle of issues seen earlier this month, possibly due to its soft bullet structure.