Europe

Industrial and Commercial Bank of China's European arm wrapped up a series of investor meetings in December for its debut Renminbi Qualified Foreign Institutional Investor (RQFII) fund, which it had established in Luxembourg in October. As the very first RQFII fund to have 100% exposure to China’s domestic bond market, the benchmark product has attracted big interest from European investors, as well as some concerns about what is still a new concept, the bank has told GlobalRMB.

An updated Dutch covered bond legal framework, which took effect on January 1 this year, brings the law into line with the European Banking Authority’s (EBA) best practice guidelines and European regulations. But, since most issuers already comply with the amendments, the impact is likely to be limited, said analysts from Société Générale’s research team.

Credit Suisse has become the first Issuer to change the terms of its covered bonds from a hard to a soft bullet maturity — on existing deals. The move, which puts investors at a disadvantage, shows they cannot rely on original terms remaining in place through the life of a deal.

The primary covered bond market was re-opened by Barclays Bank, which issued a £1bn three year sterling deal on Monday. Order book momentum was slow to build reflecting an underlying uncertainty about the near term spread outlook and the size of new issue premiums that will be required next week when the more important euro market is expected to open.

Obligations Fonciére issued by Compagnie de Financement Fonciere and CIF Euromortage were downgraded one notch by Fitch this week following the rating agency’s downgrade of France’s long term rating to AA from AA+.

The Bank of England’s stress tests of its eight major banks and building societies has not spooked covered bond investors, despite the near failures of Royal Bank of Scotland and Lloyds.

The International Monetary Fund’s recommendation that Danish banks reduce reliance on short-term funding and limit lending on variable rate, as well as interest-only mortgage loans, is credit positive for Denmark’s credit institutions, said Moody’s on Monday.

The European Central Bank is legally obliged to carry out its role as a single supervisor and its responsibility to apply resolution measures will take precedence over its position as a covered bond investor, say analysts at Barclays research. As the central bank has the power to make decisions that could be detrimental to covered bond holders, covered bond supervision should be strengthened.

Issuance of benchmark Pfandbriefe is expected to increase slightly next year, but with private placements set to decline more sharply, the overall size of the German covered bond market will shrink, said the German Association of Pfandbriefbanks (VDP).

Mediobanca and UniCredit could see their covered bonds drop to A- after Standard & Poor’s downgraded the Italian government by one notch to BBB-.

Covered bond investors continue to be concerned about the European Central Bank’s third covered bond purchase programme, as the intervention appears to be pushing private money out of the market. Central bank allocations in recent deals have been up to 60%, and at least one cornerstone investor is gradually exiting the market.

Covered bond harmonisation must be ambitious rather than lowest common denominator, or there is little point in the project, according to a presentation at the Association for Financial Markets in Europe / Verband deutscher Pfandbriefbanken covered bond conference in Berlin.