Euro

HSBC, UBS, Commerzbank and Royal Bank of Canada all had a good 2015, in contrast to Barclays and BNP Paribas.

The UK covered bond market is likely to contract in 2016, and with concerns over Britain’s exit from the European Union likely to mount, the sterling covered bond market could prove more attractive than euros. Despite that, UK mortgage lending has been vibrant and UK issuers are expected to contribute a sizeable portion to next year’s overall covered bond supply.

The Canadian covered bond market is one of the few that is expected to continue growing in 2016. With Canadian banks likely to issue a similar amount of euro benchmark paper as Italian banks the region is expected to produce the fourth equal largest amount of supply next year.

With €133bn of euro-denominated benchmarks outstanding, the Scandinavian covered bond markets together are larger than Germany’s market. Scandinavian borrowers are expected to issue around €23bn in 2016. Swedish and Norwegian issuers are expected to take the lead with supply followed by Finland and Denmark.

Covered bond supply is expected to increase next year, and with the European Central Bank potentially scaling back covered bond purchases in favour of public sector assets, spreads may drift wider during the first quarter when the primary market is likely to be at its most active. However, this should improve relative value even further, thereby re-engaging private investors.

Ratings of most German public sector covered bonds will not be affected by the expiry of guaranteed Landesbank and savings bank liabilities due at end of this year, said Fitch. However there are a few exceptions.

Obbligazioni Bancarie Garantite supply of anywhere between €10bn and €15bn is expected by analysts in 2016, meaning Italy will be the fourth largest issuance region for euro covered bonds next year. House prices are bottoming out and positive economic growth is likely for the first time in years. Though non-performing loans are unsettlingly high, they should peak in 2016, suggesting that the overall picture is starting to look encouraging.

UBS successfully completed a cash tender offer for Sfr6.1bn ($6.12bn) of its securities on Thursday, including one covered bond, as the group looks to further strengthen its capital base.

Spain is expected to issue the third highest amount of covered bonds in 2016 but with redemptions considerably above that level, the country also faces the highest net negative issuance of any jurisdiction. With the economy set to grow at almost double the pace of Italy and Portugal, the credit and spread outlook will remain positive, unless there are any political surprises.

The European Covered Bond Council (ECBC) has published a draft response to European Commission’s consultation proposing harmonisation of the covered bond market. It says that a combination of a recommendation and a principle-based directive will ensure that national markets continue to function smoothly, while protecting the prominent role of covered bonds.

A record number of covered bonds are on positive outlook said Fitch in its 2016 covered bond outlook. With sovereign ratings now more stable, covered bond ratings should also become more stable.

France is expected to issue the second highest volume of covered bonds next year after Germany, but with redemptions exceeding supply, the overall size of the market will contract again in 2016. House prices are expected to stabilise next year after falling since 2011, but new loan origination will remain subdued, according to a range of predictions made by covered bond analysts.