Covered Bond & RMBS Comment – The countdown to Christmas

by: Joost Beaumont

  • Year-to-date supply of euro benchmark covered bonds at EUR 106bn
  • On track to reach our 2017 forecast of EUR 110-115bn
  • Strong investor appetite and low spreads to support flow of new deals
  • Market open for few more weeks
  • Peripheral covered bonds continued to outperform last week
  • Portugal currently seems the favourite among investors

 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.

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A quiet end to the week

Year-to-date supply of euro benchmark covered bonds reached EUR 106bn last week, which is well below the EUR 121bn that was issued in the same period last year. However, new issuance in November (EUR 8bn so far), was above the EUR 6.75bn that was issued in November 2016. Overall, new supply of euro benchmark covered bonds seems on track to reach our forecast of EUR 110-115bn for this year as a whole.

Indeed, the window to the primary market is still wide open, given ongoing strong investor appetite, whereas spreads have reached post-crisis lows. What is more, last week’s 4y deal of Berlin Hyp showed that many investors like to add shorter-dated paper to their portfolios, even at a negative yield. This means that issuers can opt for all parts of the curve. As a result, we expect issuance to pick up again this week, also because the market is likely to be open for only a few more weeks.

Pipeline thin

The pipeline is rather thin at the moment, as only Finnish OMA Savings Bank will be on the road this week to market an inaugural sub-benchmark deal. Meanwhile, TSB Bank will start a roadshow tomorrow for an inaugural 5y benchmark GBP floating rate covered bond.

Periphery continues to outperform

Last week, spreads continued to tighten somewhat further, with peripheral names outperforming according to the iBoxx index. Portuguese covered bonds did best last week, probably as they are trading at the widest levels in the periphery. But Spanish multi-cedulas as well as Italian paper also performed well. Dutch paper seemed also in favour last week.

On Friday, we saw buyers of Dutch paper at the long end, while there were some sellers of shorter-dated paper. Furthermore, Nordic names were being sold again in small sizes.

 Other news

* Fitch upgraded the rating of the conditional pass-through covered bond programme of Caixa Economica Montepio Geral to A+ from A. Meanwhile, it affirmed that the BBB+ ratings of the covered bond programmes of Banco Comercial Portugues and Caixa Geral de Depositos, as it did with the A rating of that of Banco Santander Totta.

* Fitch affirmed the AAA ratings of several tranches in Dutch RMBS transactions Hypenn II (A1, A2, A3), Hypenn III (A1, A2), Hypenn IV (A1, A2), Hypenn V (A1, A2), and Hypenn VI (A). The rating agency also affirmed all ratings of the Storm 2015-II transaction.

 

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