The GlobalCapital Podcast
Justice for Covered Bonds (and Securitization)
Why It Matters
Understanding these regulatory shifts is crucial for investors and banks, as risk‑weighting changes directly affect capital costs and demand for different funding instruments. The episode’s insights into issuance trends and policy impacts help market participants gauge liquidity, pricing dynamics, and the competitive landscape in European credit markets.
Key Takeaways
- •EU approved 5% risk weight for senior STS securitizations.
- •5% risk weight for AA‑rated covered bonds rejected.
- •Covered bond lobby seeks review clause to regain risk‑weight reduction.
- •Bank bond premiums fell, corporate premiums rose during strong issuance.
- •Alphabet’s €9 bn euro issuance spurred parallel bank bond launches.
Pulse Analysis
The European Parliament’s Economic and Monetary Affairs Committee cleared a key amendment to the EU securitisation framework, granting senior STS tranches a 5% risk‑weighting. This move lowers the capital banks must hold, boosting demand for these assets.
\n\nIn the securitisation arena, stakeholders such as the Association for Financial Markets in Europe (AFMI) voiced concerns over punitive sanctions for investors who breach due‑diligence rules, fearing the measures could deter new participants. The broader goal of the reforms is to deepen the investor base, which currently suffers from a “complexity premium” that raises transaction costs. \n\nCorporate issuance remained vigorous, highlighted by Alphabet’s €9 bn euro offering that coincided with simultaneous bank deals from Barclays, ING and others.
While corporate premiums edged higher, banks managed to keep spreads tight, suggesting investors view banks as a stable, high‑quality credit source amid modest loan growth. The week’s dynamics illustrate a shifting credit landscape where regulatory tweaks, investor sentiment, and mega‑issuer activity intersect to shape pricing and demand across Europe’s covered‑bond, securitisation, and broader bond markets.
Episode Description
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◆ EU regs plan sparks debate over treatment of secured borrowing
◆ Blistering corporate and FIG issuance but why are premiums rising in one market but not the other?
◆ UK Renters' Rights Act to impact UK buy-to-let RMBS market
Plans to change the capital risk-weightings banks must apply to some of their securitization holidings caused consternation in the covered bond market this week. Both securitization and covered bonds are forms of debt secured on a pool of assets — often of the same type, such as mortgages. Of course there are big differences between the two asset classes as well.
Fresh from the European Covered Bond Council's conference in Norway this week, we delve into the controversy and what the outcome will likely be for the way covered bonds are treated under the rules, as well as securitizations.
Another two markets that are close cousins are the European financial institution and investment grade corporate bond markets. Both have been very busy lately, awash with deals. But while new issue premiums are rising in the corporate bond market, that is not the case in the FIG market. We discuss why that is and what the pipeline looks like in each for the rest of the month.
Finally, we discuss another set of rules affecting securitization. The Renters' Rights Act recently came into force in England. The changes it demands to the way landlords operate will have a knock-on effect on the UK's buy-to-let residential mortgage-backed securities market. We examine what those will be.
Now read on:
Experts play down European snub to covered bonds
Who's afraid of securitization?
Fearless FIG investors gobble up latest wave of heavy issuance
Corporate issuers pay up in euros as bond wave floods market
Fear not the hyperscalers
UK BTL RMBS to persist despite Renters' Rights Act
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