Covered Bond & RMBS Comment – Second kiwi of the year

by: Joost Beaumont , Lea Riives

  • BNZ to issue the second New Zealand euro benchmark of this year
  • We see fair value for the 7y deal at around ms +mid 10s
  • IPT for senior tranche of Dutch RMBS Storm 2017-II set at 3mE +high 10s
  • Spreads for Dutch RMBS currently at post-crisis lows
  • Shortage of homes on Dutch housing market to increase in coming years…
  • …which will continue to exert upward pressure on house prices

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Covered-Bond-RMBS-Comment-22-June.pdf (275 KB)

BNZ to come to the market with a 7 year covered bond

Today, BNZ International will launch a 7 year EUR benchmark covered bond, after it completed a roadshow last week. The deal will be the second from New Zealand this year, while its will extend the country’s curve by a year. Currently, the longest outstanding deals from the country are the ASBBNK 0 ⅛ 10/18/23 and the ANZNZ 0 ⅛ 09/22/23, which are trading at around ms +10bps. Adding some bps for the curve extension, we see fair value of the new 7y deal at around ms +mid 10s. Guidance has just been set at ms +18bps.

This would also be consistent when looking at some Australian benchmarks, which tend to trade some 5/6bps tighter than their New Zealand counterparts. Best comparable is probably WSTPC’s recently issued 7y deal (i.e. the WSTP 0 ½ 05/17/24), which is now quoted at around ms +9bps.

 The cover pool fully consists of New Zealand residential mortgages, which have a WA seasoning of 50 months and an indexed LTV of 39%. Nominal OC was some 20% in March.


Yesterday Leeds Building Society completed its roadshow for an euro benchmark covered bond. As such, the issuer is expected to come to the market shortly.


Spreads stable in secondary market

Spreads remained stable in the secondary market, where trading was limited yesterday. We saw some buyers of Dutch paper in the short end of the curve, while this paper was sold in the belly of the curve. Furthermore, there were sellers at the long-end France, while Canadian paper was in demand. Recently, we have also seen some good demand for Australian/New Zealand paper, so it will be interesting to see at what level the new 7y of BNZ will be priced.

 IPT out for Dutch RMBS transaction Storm 2017-II

Obvion set the IPT for the senior (and only offered) tranche of Dutch RMBS transaction Storm 2017-II yesterday. The deal is likely to price this week and marks the issuer’s third RMBS deal this year. In January, Obvion printed EUR 2bn of the senior tranche of the Storm 2017-I deal at 3mE +24bps, while EUR 550mn of the Green Storm 2017 transaction was priced at 3mE +17bps in May.

The IPT for the class A tranche (rated Aaa/AAA/AAA, pre-set coupon of 3mE +60bps, WAL of 4.9yrs, as pool is fully revolving until the FORD, and CE of 8%) has been set at 3mE +high 10s, This is some 8bps higher than the current level (3mE +11bps) of the senior tranche of the Storm 2017-1 deal. The deal will be backed by Dutch residential mortgages, of which 28% NHG guaranteed. Seasoning is some 86 months, the average loan size is EUR 188K, and the CLTOMV is 81%.

As can be seen on the graph below, pricing for Dutch RMBS transactions has tightened since the crisis and is presently around post-crisis lows, also supported by the ABSPP. The Purple Storm (2016) deal, however, can be seen as an outlier in terms of pricing, as it was used for balance sheet relief.


Shortage of homes on Dutch housing market to increase

Dutch newspaper Het Financieele Dagblad reported today that the shortage of supply of homes in the Dutch housing market is likely to increase in coming years. It was mentioned that 54K new homes were build last year, which falls short by the 80K that is necessary to meet rising demand. It is widely expected that this trend will continue in coming years, resulting in a shortage of around 190K homes by 2019. Complex building procedures as well as a focus on building new homes in cities (where space is limited) are the main factors impeding the construction of new homes. Overall, this will continue to put upward pressure on prices.

 Other news:

* Fitch noted that the recent downgrade of the issuer rating of Banca Popolare di Sondrio did not change the AA rating of its covered bonds.

* Moody’s assigned a preliminary Baa1 rating to the mortgage covered bonds of Turkish Garanti Bank.


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Global Daily – ECB too optimistic on core inflation

Financials Watch – Banco Popular wiped out in Santander sale

Eurozone Watch – Target2 balances a ticking time bomb?