Covered Bond & RMBS Comment – Turkey to return, after luck of the Irish

by: Joost Beaumont , Tom Kinmonth

  • UniCredit sees apt demand, with a modest premium
  • Secondary market stable, as French covereds keep their Macron gains
  • Turkey eyes expansion into EUR covereds, offering investors great diversity
  • ECB purchases show no major changes, with secondary taking preference
  • Unique RMBS deal, shows strong interest, helped by Irish outlook

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-26-April-1.pdf (257 KB)

UniCredit sees apt demand, with a modest premium

The book yesterday for the UniCredit 9 year deal reached a modest EUR 900mn, allowing the issuer to print EUR 750mn. The deal priced at ms -10bps, just 1bps inside initial guidance. However, despite the non-blockbuster book, it still allowed the lead to just offer a new issue premium of 2bps.

 Secondary market stable, as French covereds keep their Macron gains

French covereds still stayed in demand in the post-election market, with spreads even to slightly tighter for the day. Dutch and German names continue to show demand that has lasted all week. Meanwhile, other covered spreads stayed broadly stable for the day.

 Turkey eyes continued expansion into EUR covereds

Turkey continues to eye the EUR covered market with interest, offering investors diversity. On Friday, Türkiye İş Bankası (İşbank) announced that it established a new mortgage covered bond programme. Turkey’s largest bank, gained a provisional Baa1 rating (BBB+ equivalent) on an expected EUR 500mn deal.

 Meanwhile, on Monday we saw Turkey’s Yapi Kredi agree to sell up to EUR 1bn of mortgage covered bonds. The bank had setup its covered programme last year, and now feels ready to enter the EUR market. If we also recall, Vakifbank was the first Turkish bank to come to the EUR covered market last year, with their EUR 500mn deal VAKBN 2 ⅜ 05/21. Despite recent tension in Turkey, this deal trades roughly around z-spd +243bps, 7bps inside of where it was issued 12 months ago.

ECB purchases show no major changes, with secondary taking preference

ECB data showed there was no major changes in their purchasing under CBPP3. The institution bought gross EUR 0.9bn of purchases, of which EUR 0.3bn were reinvestments. The secondary market took the lion’s share of these purchases, in line with previous months.

Irish RMBS NPL sales, strong interest supported by the improving Irish outlook

The Lone Star sale of Irish RMBS saw strong interest, and shows the positivity some part of high risk RMBS NPL portfolios. The overall ERLS 2017-NPL1 deal was backed by a portfolio of EUR 420mn. The Class A amounted to EUR 183mn and was priced at DM +225bps, a coupon of 1mE +100 bps, and obtained a A1 rating by Moody’s. The deal offer something new and unique for investors, with arrears very high on the deal, roughly 79% of the deal had loans that were over 18 months in arrears. Meanwhile, negative equity represented 38%, something which should decrease due to the kind and improving Irish macro backdrop.

Demand was strong for the class, supported by the strong fundamentals that have returned to the Irish economy. The deal benefits from the shamrock positives of; improving housing market, improving economy and progress in government fiscal consolidation. The Irish government deficit is also planned to shrink further next year, before the budget registers a surplus from 2018 onwards. Meanwhile, the Irish economy grew by 5.2% in 2016, and we expect a growth of 3.5% for 2017, and 3.3% for 2018. We do not think however, that the demand for distressed Irish NPLs would transcend to periphery RMBS deals in the current conditions. Ireland is rather an outlier, and it has performed exceptionally well. We see strong positivity in both Irish banks and the economy, see here.

 Other News

* Deutsche PBB completed a USD 600mn 3 year covered deal at ms +55bps. This was from an IPT of +57bps.

* DBRS assigned an ‘A’ rating to the Santander Totta Series 22 covered bonds

* DBRS also confirmed it’s “A” rating on the Novo Banco S.A. conditional pass-through covered bonds

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Housing Market Monitor – Next government’s plans still guesswork

Insurance Watch – The new UFR and its implications