Covered Bond & RMBS Comment – Investors still there

by: Joost Beaumont

  • New 10y of Commonwealth Bank Australia twice oversubscribed
  • HSHN raised EUR 350mn with 7y tap
  • Long-end France becoming expensive versus French sovereign
  • Dutch house prices increase at fastest pace in nine years in June
  • Prices rose by 15% in Amsterdam in Q2
  • GBP 400mn of demand for UK prime RMBS Lanark 2016-1

DISCLAIMER: This report has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead. This report is marketing communication and not investment research and is intended for professional and eligible clients only.

Covered-Bond-RMBS-Comment-21-July.pdf (237 KB)

Solid demand for CBA’s new 10y euro benchmark

Commonwealth Bank of Australia (CBA) successfully launched its third benchmark of the year, printing a 10y euro jumbo covered bond at ms +20bps. This was well below the IPT, which looked already rather attractive. In any case, we estimate that the new deal offered a decent new issue premium, while also remaining well into positive yielding territory. Consequently, demand was rather strong, as the deal was twice oversubscribed. This shows that investors are still at there, keeping the window to the primary market open.

comment graph 1

HSH Nordbank upsized 7y tap

HSH Nordbank was the fifth German bank that tapped the market in July. It had set guidance of the 7y tap at ms +20bps, while the minimum size was EUR 250mn. In the end, the issuer raised EUR 350mn at ms +18bps, while the HSHN 0 ⅜ 04/27/23 (rated Aa3) was trading at around ms +15/19bps before the tap.

Spreads of French covered bonds versus government bonds tight at long-end

Sentiment in the secondary market was constructive yesterday, although trading flow remained light. We saw only small selling of old CBA covered bonds on the back of its new 10y deal. Meanwhile, there were sellers of Dutch covered bonds in the belly of the curve, while there were buyers of French names in the long-end. However, the long-end France starts to look expensive versus French government bonds, as the spread difference has tightened strongly recently.

New prime UK RMBS Lanark transaction book update

Demand for the only one tranche offered of the Lanark Master Issuer Plc Series 2016-1 transaction stood at GBP 400mn yesterday. Meanwhile, the IPT of the AAA/Aaa rated tranche (WAL of 2yrs, CE of 12%) remained at 3mL +100bps.

Dutch house prices increase at fastest pace in 9 years

In June, Dutch house prices rose by the fastest pace in nine years. Prices increased by 4.6% compared to the same period a year ago (May: +4.3%), reflecting the ongoing strengthening of the housing market. Indeed, although prices are still 13.8% below the peak reached in August 2008, they are already up by almost 10% from the trough reached in June 2013.

The data also showed that prices increased in all regions, although the price increase is much stronger in urban areas. Amsterdam is topping the list, as house prices increased by 15% in Q2 compared to 2015Q2. It is also the only place in the Netherlands where prices are above pre-crisis levels. Furthermore, prices of apartments increased by the most in the second quarter, reflecting the buoyant housing market in urban areas.

The price increase follows an ongoing strong rise in housing transactions, and shows that the Dutch housing market continues to strengthen. This is mainly due to record low mortgage interest rates and the past drop in house prices, which have improved housing affordability. Meanwhile, a brightening economic outlook also underpins the recovery.

Other news:

* Fitch has placed the A+ ratings of the covered bonds issued by Credito Emiliano as well as Mediobanca at Rating Watch Positive, following an update of its counterparty criteria.

* Fitch affirmed the AAA rating of the covered bonds of DBS Bank. The rating buffer is two notches.

* Moody’s has put on review for downgrade the ratings of covered bonds of six Turkish banks, following similar actions on the issuer ratings as well as the sovereign rating.