Secondary market

• Tight repo leads to fears of failed trades

  The secondary market in covered bonds is in danger of breaking, and though it is not there yet, there are concerns over ‘forced delivery squeezes’ in the repo market which may lead to failed trades. Though it has always been the intention of the European Central Bank to improve liquidity, there are some who now say that it is not doing enough. Covered bonds could risk becoming almost like a private placement market if the current situation persists.

Mandates & deal pipeline

• Gaping window attracts few issuers

  Issuers could hardly hope for a better backdrop to bring benchmark deals. Bond yields are falling and investors are looking to put cash to work across a swathe of asset classes to capitalise on the rally, as seen most emphatically in the senior unsecured market this week. Yet Norway’s Sparebank Vest Boligkreditt remains the only obvious candidate for a deal next week.

In-depth analysis and interviews

• Roundtable: Oz issuers discuss market’s future

  Australian issuers have priced over €11bn across five currencies thus far in 2012, ensuring that despite a steep drop in euro benchmark issuance the global covered bond market retains its record breaking pace.

• Supply scarcity sets market on fire

  A year on year comparison reveals that the covered bond market is starved of Eurozone supply, particularly in short maturities and noticeably from Germany. Though a new issuer has applied for a Pfandbrief licence, the picture is not likely to change soon and, despite the precarious sovereign backdrop, bankers say spreads could tighten by another 50bp-100bp.

Market wrap

• Morning Wrap, January 27: BPI buyback may spur others

  Portugal’s Banco BPI has launched the second covered bond tender of the year, offering a slim premium for its first covered buyback, though rising fears of a Portuguese default could provide an added incentive for investors.

Opinion

• What the Coeur case means for covered bonds

  French courts threw out contractual rights when they ruled to protect the owners of the Coeur Défense tower from their creditors. But the answer to this isn’t self-righteous indignation. It’s to beware of any market that’s never seen a default.

Analyst research

• LTRO could spark covered buybacks

  Portuguese and Irish issuers could follow National Bank of Greece and tender covered bonds ahead of the next ECB Long Term Refinancing Operation in February. Even if participation is half that of NBG’s recent buyback operation, the capital increase could make a compelling argument.

Deal reviews

• Sparebank pulls in strong book for rare seven year

  Sparebank 1 Boligkreddit convinced over 110 accounts to participate in the first publically syndicated seven year covered bond in almost six months.

• A$ market’s show of strength for Westpac

  Westpac Banking Corporation priced its first Aussie dollar covered bond on Monday night, following in the wake of Commonwealth Bank of Australia. It mimicked CBA’s choice of tenor and dual fixed rate and floating rate format — but issued slightly less and at a tighter spread.

Regulatory developments

• Structured covered eligible for LCR, but not ABS

  Structured covered bonds which use SPVs will remain eligible for bank liquidity buffers, analysts said on Monday. This follows confirmation that ABS will not be eligible for inclusion in the liquidity buffers as it is not issued by a credit institution, the analysts said. They were responding to reports last week, prompted by the latest draft of CRD IV, released by the Danish presidency on January 9, that ABS could be included.

RMBS primary news

• Santander funds cheaper in RMBS than covered

  A sizeable new euro bid for UK RMBS emerged this week as Santander UK’s £2.2bn-equivalent Holmes 2012-1 provided the sector’s first issue of the year. The deal raised funding at levels considerably tighter than where it could have issued in covered bonds.

Rating news

• Eurohypo downgrade priced in

  Moody's looks set to downgrade Eurohypo's Pfandbriefe below triple A, not that it should matter. The rating move is already discounted, and with German supply in such short supply, its outstandng bonds are set to remain well supported. Moreover, with more ECB cheap money coming, Pfandbrief issuers have very little incentive to pay up and go to the public market.

People moves

• Postbank stalwart Garre moves on

  Eusebio Garre has decided to leave his position as head of funding at Deutsche Postbank, ending a 15 year stint at the bank.