Covered Bond & RMBS Comment – Eurosystem in holiday mood?

by: Joost Beaumont

  • No new deals were launched despite good new issue conditions
  • Secondary trading sees demand for Irish and Canadian names
  • Weekly QE numbers show drop in ABSPP and small increase in CBPP3
  • This suggests that the central bank has shifted into holiday mood…
  • …but today’s redemption figures will complete the picture
  • S&P downgraded Achmea Bank downgraded on weaker earnings outlook

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Covered-Bond-RMBS-Comment-26-July.pdf (314 KB)

Primary market silent

Yesterday, there was no activity in the primary covered bond market, despite the fact that new issue conditions are still favourable. This could be due to a large number of banks still being in their black-out period, but it could also well be that the summer holidays have started. Rumours are that some German banks are looking to tap the market, in line with recent trends.

Buyers of Ireland and Canada

Trading activity has also come down in the secondary market, which seems to have moved into the summer lull as well. We saw some buyers of Irish and Canadian covered bonds in the belly of the curve, while Nordics paper was looked for at the short end. The Eurosystem seemed not really active. Spreads were roughly stable for the day.

ABSPP drops – CBPP3 also down

The Eurosystem’s weekly data on its QE purchases showed that the total amount of ABS purchases dropped by EUR 126mn to EUR 20.3bn, reflecting redemptions outpacing purchases. Meanwhile, covered bond purchases increased by only EUR 534mn, which was almost a third of the purchases during the week before last. The small increase in CBPP3 might also be due to redemptions, but this data will be published today. Assuming zero redemptions, this would imply that the central bank’s secondary purchases would have fallen to a low of around EUR 47mn on average per day. This would be either a sign that the central bank is taking a step back due to the holidays or that bonds are currently hard to find. The total amount of CBPP3 now stands at EUR 186bn.

Other news:

* S&P downgraded the rating of Achmea Bank to A- from A, following a more bearish view on its earnings. The outlook is stable.

* BPCE will retain a new notes that will be issued from its BPCE Master Home Loans RMBS programme. S&P has already assigned a AAA rating to the class A-2016-01 notes, which have a WAL of 4yrs and CE of 11.8%.