Euro

Investors have agreed to a number of changes to Nationwide Building Society’s covered bond programme. The publication of voting results in full is in line with the European Central Bank’s recommendation — but something that is still rarely seen in the market.

The deadline for submitting bids for the European Central Bank’s targeted long term refinancing operations (TLTRO II) is due at the same time as the UK EU referendum result. SEB analysts anticipate borrowing will be higher than the median forecast and think this will help alleviate potential Brexit related spread widening.

Compagnie de Financement Foncier (CFF) has updated its EMTN Obligations Foncières programme documentation to permit issuance of soft bullet covered bonds, bringing its deals into line with most others. The move comes as Germany considers updating its law to allow for soft bullet extensions.

From a regulatory standpoint the spread level of UK covered bonds suggests a UK exit from the European Union has been priced in. However, given uncertainty over how the process of leaving the Union would be finally completed, it is likely UK bonds will remain unloved.

When the covered bond purchase programme (CBPP3) began in October 2014, valuations had become severely overstretched, and not long after the purchasing began, the market came under considerable pressure. Valuations are once again looking overstretched across the board but more so in the corporate sector where eurosystem buying has also only just begun.

Peripheral covered bond spreads were marked tighter on little volume on Monday, in line with a general improvement in risk appetite across the credit spectrum after a number of polls showed a swing in favour of the UK remaining in the European Union. But with opinion more evenly balanced than ever, the market has probably overreacted.

PKO Bank Hipoteczny, Poland’s largest mortgage lender, has issued its second covered bond since the country’s updated legal framework came into force. The well oversubscribed, tightly priced and broadly distributed deal sets a strong prelude for an expected inaugural euro benchmark later this year.

A vote for the UK to exit the European Union next week is likely to intensely magnify a strong rush into safe haven assets, but some bankers are still confident that after the initial furore of a ‘Brexit’ there could be room for issuers eyeing euro deals in July to go ahead. And, if the UK opts to stay in the EU, issuers are likely to be lining up to print in July.

A rush to safe haven assets amid fears of a UK exit from the European Union crystallised higher Spanish bond yields at a bond auction on Thursday.

Turkish banks are looking to mortgage-backed covered bonds to close asset and liability mismatches and reduce borrowing costs. In the next few years, the asset class will become a cornerstone of their funding plans.

The Swedish covered bond law requiring issuers to hold a minimum overcollateralization ratio of 2% is expected to come into force on June 21.

The Danish covered bond issuer extended its curve and priced a larger deal well inside where its inaugural five year was issued in March and with a fair oversubscription ratio.