Covered Bond & Agency Monitor - The bear steepening is starting to take its toll (English version)

  • CB Market Telegram: So far, covered secondary market spreads did not yet adjust to the changed steepness. Reason being large holdings by the ECB or by other buy and hold accounts. The tension in relative valuation materializes, however, materializes in the primary market in two dimensions: (i) change in reoffer vs. guidance levels and (ii) decreasing book cover ratios.
  • SSA market telegram: The SSA primary market showed lively activity this week, including two new EU SURE deals. In the secondary market, the iBoxx Sub-Sovereigns index came under pressure and widened by 2bp on a weekly basis.
  • UOB brings Singapore’s covered bonds back: This week, UOB reopened the Singapore covered bond market with an 8Y issuance, the longest tenor so far chosen by banks in Singapore. The three active issuers, DBS, OCBC and UOB all reported very strong 1Q21 results and on the back of the recently increased encumbrance limit, we expect to see more bonds to be issued out of Singapore.
  • EU update: SURE funding almost completed: On Tuesday, the European Union (EU) issued a EUR 14.137bn dual-tranche under its SURE program. Including this transaction, the EU has now raised EUR 89.6bn within just seven months under SURE and has concluded its SURE funding needs to a large extent.
  • Belgian regions in capital markets: The Belgian regions and communities are increasingly tapping capital markets for bond issuance and are active issuers in the ESG bond market. We initiated coverage on the four regions and communities issuing benchmark bonds.
  • German states – all you need to know: German states are by far the largest issuers among European regions. To balance revenue shortfalls and increased expenditures during the COVID-19 pandemic, German states have increased their bond issuance activities which led to higher debt levels. However, we see the German states as strongly positioned to navigate through the crisis and German states remain one of our favorite picks in the SSA universe.

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