Real money investors are
returning to covered bonds and the market is Getting Back on Track, according to key investors and issuers who took part in The Covers roundtable that was held
in February in conjunction with Crédit Agricole CIB.
NIBC Bank issued the longest ever maturing conditional pass-through (CPT) covered bond from a bank in Europe’s core on Tuesday. The granular order book and modest new issue concession suggested that market conditions have stayed strong.
The European Central Bank has stepped back covered bond purchases despite much higher supply so far this year compared to last.
Dutch issuer Obvion is launching the world’s first green RMBS deal, backed by a €271m portfolio of loans on prime energy efficient homes.
UK banks Santander and TSB issued prime RMBS on Thursday and Friday last week, respectively. Meanwhile, UK Mortgages Limited has announced a third RMBS backed by mortgages originated by Coventry Building Society.
Bank of New Zealand has mandated leads to roadshow its first euro benchmark in four years. It joins Westpac New Zealand and SR Boligkreditt which are also marketing deals.
Development Bank of Singapore has appointed leads to explore the possibility of issuing its first benchmark in Australian dollars. DBS has yet to issue its first deal in euros, where market liquidity and depth is considered superior to any other currency.
Norwegian issuer SR Boligkreditt and New Zealand issuer Westpac NZ will both take new euro deals on the road before the end of May.
After recently issuing its debut RMBS, TSB Bank, the UK bank that was spun off from Lloyds, has filed vehicles suggesting it will turn to covered bonds.
Banca Carige may follow the example of Portugal’s Montepio, which on Friday said it would restructure its covered bond programme to a conditional pass-through (CPT), resulting in a three notch upgrade. The Italian bank’s bonds were junked by Fitch on Thursday, and with access to primary markets at risk, it may copy Monte dei Paschi Siena which switched to a CPT last year.
Moody’s has talked up the positive credit aspects of Turkish covered bonds in an in-depth report which it published on Thursday. However the agency says Turkish covered bonds remain susceptible to tail event risks such as the political environment — a point which locals dispute.
BRRD does not specifically link covered bonds to a particular resolution strategy. This uncertainty is less of a concern for large systemic banks, but because smaller failing banks are less likely to be resolved, their covered bonds are at higher risk of default, said Moody’s.
Natixis Pfandbriefbank has structured a €90m Sharia compliant commercial real estate loan, which is also eligible for Pfandbrief refinancing.
The bank that issued the first jumbo Pfandbrief, a transaction that sparked a transformation of the covered bond market from its parochial German roots into a globally renowned asset class, has finally been wound down.
The French government is expected to unveil a draft amendment to its covered bond laws, aligning the Société de Crédit Foncier (SCF) and Société de Financement de l’Habitat (SFH) frameworks, which should mainly benefit Axa Bank.
Investors derided the covered bond conditional pass-through (CPT) mechanism at the CEE Covered Bond Forum held this week in London. They said the structure had been mispriced and would give regulators a strong disincentive to intervene on behalf of noteholders.
Germany’s WL Bank has tapped an ultra-long dated covered bond by €250m, following a similarly sized tap, also at the long-end of the curve, undertaken by Caffil earlier this week.
Philip Bennett, chief operating officer at the European Bank for Reconstruction and Development (EBRD), said that 2016 was “finally” the year that progress would be seen in the nascent central and eastern European covered bond market.
Covered bond spreads are set to head tighter, though the risk of a repricing has kept real money investors more focussed on non-Eurozone bonds. Peripheral markets are considered most vulnerable to a repricing but still offer tremendous value against the corporate sector.
Vakifbank’s euro Turkish covered bond is good for investors, good for emerging markets borrowers and good for the global economy. But the deal would probably never of happened without the intervention of the European Central Bank.
Capital markets were roaring this week, but despite increasing signs of frothiness, the euphoria looks set to persist for some time longer.
Several covered bond issuers have removed the swaps in their covered bond programmes, in the face of onerous regulatory obligations. This has improved their funding efficiency and given investors a less risky, more transparent, and potentially higher yielding product. Others should follow.
The job of BNP Paribas’ covered bond research analyst, Heiko Langer, has been put at risk.
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