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Unsecured bonds could become more expensive to issue, covered bonds cheaper
The euro covered bond market shook off a volatile end to 2024 to rebound with a raft of exceptionally popular deals in 2025. Investors appeared eager to pile into euro covered bond books this year, propelling bid-to-cover ratios upwards and new issue premium downwards, writes Frank Jackman
Covered bond funders will have to weave their way through tight senior unsecured and wide SSA spreads in 2026 if they are to refinance the wave of redemptions that awaits them. One big question for the year ahead, discovers Frank Jackman, is whether issuers will be tempted to pay up for duration
Implementation could push covered spreads closer to govvies and SSAs
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After the busiest June since 2010, banks are well progressed in the covered funding programmes -
Benchmark issuance is running 13% ahead of last year
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Burst of deals this year in uneven market suggests investors want alternatives to Treasuries
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Central and Eastern Europe earmarked as an area of growth by market participants
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With masses to fund and spreads super-tight, banks will race to market, but central banks are expected to tighten
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Banks could rush to issue as fast as possible, taking advantage of remarkably tight spreads
