Euro

Australian covered bonds, which offer among the widest spreads for the high credit quality, have been better bid in the secondary market over the past two weeks, but on Wednesday buying interest was reported further out along the curve. The news comes after Fitch and Moody’s published relatively upbeat assessments of the Australian and New Zealand covered bond markets.

A year after the European Central Bank started buying covered bonds for its third purchase programme (CBPP3), the pool of investors that buy eurozone covered bonds has dwindled. But this provides a unique opportunity for issuers ineligible for CBPP3. Canadian banks have brought a welcome injection of attractively priced paper that has engaged a broad audience. And with CBPP3 set to continue for at least another year, the outlook for inaugural deals from new countries is promising. Euro issuance from Singapore, Poland and Turkey should soon be offering investors a broad menu of credits, at potentially interesting spread levels.

The French bank opened books for an eight year benchmark on Tuesday. The initial double digit spread looked generous and ensured the first covered bond to be issued in December got off to a strong start.

Gross covered bond supply is expected to reach €185bn globally next year, up about €10bn from 2015 and the highest since 2011, according to analysts at Barclays.

The French covered bond issuer has mandated leads for its second deal of the year and is expected to open books on Tuesday.

House prices have fallen in Singapore in the last two years, but covered bond ratings are highly resilient and have been stressed to price declines many times greater than the price falls seen, said Fitch. Bankers note that Singapore’s property price decline has been deliberately engineered and say it is one of the most regulated markets in the world.

The German government is considering new rules that would govern the regulation of loans for construction and residential properties. Though it is not clear whether the rules will become adopted, analysts at LBBW research say that if they are, they should lead to an improvement in the credit quality of Pfandbriefe.

Swedbank priced the tightest fixed rate senior bond in several months this week, but bail-in uncertainty continues to undermine asset class. Bankers are split on whether issuers can be drawn away from covered bonds, which gave almost free funding for SEB Germany on Tuesday.

Turkish covered bond issuers have a tough slog ahead if they want to sell covered bonds denominated in euros to the established European covered bond investor community, a recent survey conducted by Natixis research suggests.

Scope has assigned unsolicited AAA ratings with a stable outlook to 187 Swedish covered bonds with a total value of €130bn. Assigning the ratings could be an attempt to establish Scope’s credibility with the ECB which does not currently recognise the rating agency for repo purposes.

Crédit Mutuel-CIC (CM-CIC) and Banca Popolare di Milano (BPIM) issued 10 year covered bonds into relatively weak market conditions on Wednesday. Because of its larger size and tighter spread the French deal was probably the frailer of the two, and while both issuers met their funding targets in terms of size and spread, neither proved particularly popular.

The Swedish central bank published its second stability report of the year and continues to be concerned over high indebtedness and high house prices, factors which are intrinsically connected to the growth of Sweden’s covered bond market. The report follows recent proposals to tighten repo rules affecting covered bonds, proposals which the Swedish FSA and debt office have said are beyond the remit of the independent central bank.