Fixed Income Analysis /

Covered Bond & Agency Monitor - Covered bond trade ideas and SSA funding updates (English version)

    Franz Rudolf
    Franz Rudolf

    Head of Financials Credit Research

    Julian Kreipl
    Florian Hillenbrand
    Matthias Dax
    Michael Teig
    15 April 2021
    Published by
    • Covered bond market telegram: We have seen modest but continuous supply during this week with covered bonds from Germany and the Netherlands being printed. Spread performance was slightly weaker but seems to be recovering. Holdings under the CBPP3 declined while holdings under the PEPP increased.
    • SSA market telegram: Several issuers were active in the primary market this week. In the EUR-denominated market, EUR 7.25bn were placed through five transactions. In addition, SSA issuers were very active in the USD-market. In secondary markets, the iBoxx Sub-Sovereigns index is trading slightly wider than one week ago.
    • BTPS tighter than ever - what does that mean for OBGs? Italian government bonds (BTPS) reached the tightest yield levels ever. The 5-year generic yield for BTPS found a new low at -0.094%, while the yield for 10-year BTPS reached a low of 0.422%. Since 2011, Italian covered bonds (OBGs) trade below the sovereign at a substantial level; but how does the run on BTPs and the resulting yield compression affect OBGs?
    • Covered Bonds vs. RMBS - France ideal for case studies: One of the most interesting aspects in the French financial bond market is that many issuers provide investors with the whole range of bond types: from covered bonds via ABS, senior preferred, non-preferred all the way down the capital structure to T2 both in callable and non-callable format.
    • Next Generation EU - new details released: Yesterday, the European Commission (EC) announced that it will use a diversified funding strategy to raise up to EUR 806.9bn (in current prices) until 2026. Assuming funding will start this summer, this would translate into average funding needs of around EUR 150bn per year, which will make the EU one of the largest issuers in euro. Repayment of the borrowing will start as of 2028 and will take place over a long-time horizon – until 2058.
    • ESM and EFSF funding update: The European Financial Stability Facility (EFSF) kicked off Q2 funding this week, which is why we take a look at EFSF and European Stability Mechanism (ESM) funding and provide an update on the issuers.