Tuesday 7th July 2015
NEWS TICKER: MONDAY, JULY 6TH: Moody's Interfax Rating Agency (MIRA), which specialises in credit risk analysis in Russia, has withdrawn the Baa1.ru national scale rating of Petrocommerce Bank (OJSC) based in Russia (Ba1 negative). This action follows Petrocommerce Bank's reorganisation and merger with Bank Otkritie Financial Corporation PJSC (deposits/senior unsecured Ba3 negative, BCA b1). Moody's Interfax Rating Agency's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks, report Moody’s. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".ru" for Russia. - PEGAS, the pan-European gas trading platform operated by Powernext, today announced that a total volume of 68.9 TWh were traded in June 2015. This represents a year on year increase of 41% (June 2014: 48.8 TWhPEGAS, the pan-European gas trading platform operated by Powernext, today announced that a total volume of 68.9 TWh were traded in June 2015. This represents a year on year increase of 41% (June 2014: 48.8 TWh).Overall spot trading volumes amounted to 28.4 TWh which represents a year on year increase of 31%. PEGAS recorded volume increases in particular in the German, French and Dutch market areas. The June volume in the German GASPOOL and NCG areas increased to 12.0 TWh (+33%), including 3.6 TWh traded in quality-specific gas products. The volume in the French PEG Nord and TRS market area rose to 8.0 TWh (+40%). The Dutch TTF spot volume reached 8.1 TWh (+17%) while the Belgian ZTP spot market registered a volume of 222,715 MWh. The total volume of spread transactions amounted to 2.3 TWh. - Clearstream has issued an update to the Statement of Holdings report (MT535), covering both HTML and CSV formats: effective immediately the newly added column, “Pledged for Collateral” for non-available positions (introduced as part of the June release) will be renamed "Pledged for Collateral NAVL". This change applies to the Statement of Holdings report (MT535) in HTML format and when downloaded as a CSV file. Other reporting formats are not impacted, says Clearstream. In addition, when downloaded as an MT535 CSV file, the newly named column "Pledged for Collateral NAVL" will now appear as the final column. This allows a better reconciliation of positions, says Clearstream Banking - Christine Lagarde, managing director of the International Monetary Fund (IMF), made the following statement today: "The IMF has taken note of yesterday’s referendum held in Greece. We are monitoring the situation closely and stand ready to assist Greece if requested to do so.” - Morgan Lewis is enhancing its United Kingdom and global employment law capabilities with the addition of employment investigations and data privacy partner Pulina Whitaker, who joins the firm today from another global law firm. Her arrival, says the firm, strengthens the full suite of global client services offered from the Morgan Lewis London office, including those connected to finance, corporate, energy, funds, and litigation - Leading shares in European bourses will continue to struggle today as investors look for direction from European leaders over their response to the Greek referendum decision yesterday. In Asia, Japan’s Nikkei retreated -2.08% while Hong Kong’s Hang Seng went down by 4% and the Shenzhen Composite down by 4.69%. The Shanghai Composite stabilised around 3,709, up 0.61%, as China Security Finance Corp, the institution which managed short selling and margin trading, will receive a capital boost to 76bn “to maintain financial market stability and expand its business".; it is actually something of a turnaround, as Chinese equities have been under pressure for over a month now. In Australia, equity markets are trading into negative territory with the S&P/ASX down -1.14% while AUD/USD broke to the downside the strong support lying at 0.7533 (low from April 2) and is heading toward the following one at 0.7414 (low from October 2010). Tomorrow, the Reserve Bank of Australia will release its interest rate decision. The US dollar is broadly higher against G10 as only the Japanese yen is adding gains versus USD. German Chancellor Angela Merkel will meet French president François Hollande later today. Greece’s main creditors have more pressures on their shoulders; analysts suggest that they will be more willing to provide significant debt relief measures. The next payment is due to the ECB on July 20th.

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Investors remain keen even as pfandbrief issue volumes fall

Friday, 09 December 2011
Investors remain keen even as pfandbrief issue volumes fall German covered bonds (pfandbriefe) largely maintained their safe-haven status with investors through the deteriorating financial environment in the second half of 2011, despite an inevitable dramatic slump in primary issuance as markets took fright at developments—or lack of them—in the eurozone. What now? Andrew Cavenagh reports. http://www.ftseglobalmarkets.com/

German covered bonds (pfandbriefe) largely maintained their safe-haven status with investors through the deteriorating financial environment in the second half of 2011, despite an inevitable dramatic slump in primary issuance as markets took fright at developments—or lack of them—in the eurozone. What now? Andrew Cavenagh reports.

With just €1.5bn of jumbo pfandbrief issues since the end of June, and none since Eurohypo’s €1bn deal at the end of August, the primary market this year will fall way short of the €87bn recorded in 2010. Verband Deutsche Pfandbriefbanken (VDP), the association of German pfandbrief banks, now reckons the final figure for this year will come out at around €65bn, against its earlier forecast of €90bn, on the back of the €47bn of bonds that were sold in the first six months, including €19.8bn of jumbo transactions.

Pfandbrief spreads have nevertheless remained relatively stable, compared with most other classes of capital market debt and covered bonds elsewhere. While the differential between pfandbriefe and German sovereign debt (bunds) may be approaching historical highs at around 120 basis points (bps), average spreads are still only about 30bps over the mid-swaps benchmark as those on most other covered bonds are well into three figures. “Flight to quality has prevailed, and the pfandbrief has confirmed its benchmark position in the covered-bond market,” maintains a VDP spokesman.



This spread stability looks set to endure through next year. For even if EU authorities take the measures necessary for the bond markets to resume normal functioning, the overall pfandbrief market will continue to shrink, which will tend to support the current spread levels. In the jumbo sector of the market, for instance, most banks are forecasting that primary issuance will be around €26bn while redemptions, although lower than the €44bn this year, will still total €38bn.

Investor confidence in the market received a further boost on November 23rd, when the Moody’s rating agency raised its base-case timely payment indicator for mortgage-backed (hypotheken) bonds issued under the Pfandbrief Act from  “probable high” to “high”. The agency cited the strong legislative and regulatory support for the pfandbrief regime as the reason for its decision, including recent amendments to the act. These require issuers to maintain a so-called liquidity buffer of at least 180 days in respect of their pfandbrief commitments and enhance the powers of a cover-pool administrator in the event of an issuer insolvency. The pfandbrief market is nevertheless facing significant challenges over the next 12 months and beyond, which could yet alter the historical perception—which German banks and financial authorities are keen to maintain—that the instruments trade almost as an homogenous asset class.  

The increasing emphasis that both the rating agencies and investors are placing on the link between issuers and their covered bonds is certainly threatening to create a great deal more discrimination in the market, particularly in the present environment where individual banks’ sovereign exposures are under the microscope.

Moody’s decision to place UniCredit’s covered bonds on review for downgrade a week after it announced it was reviewing the bank’s senior debt rating was a recent example of such linkage. Moreover, the trend could clearly see the spread spectrum in the asset class widen significantly from historical norms. Timo Böhm, portfolio manager and member of the covered bond team at Allianz Pimco in Munich, says the mounting concern over banks’ exposure to the sovereign debt crisis has led to a more pronounced linkage between the spreads on an institution’s covered bonds and those on its senior unsecured debt. “That link to the seniors and the sovereigns is much tighter now, and therefore everybody is looking at what could be the worst case here,” Böhm explained. “Even if the covered bond is rated triple-A, its spreads will widen on these concerns.”

“From our point of view, covered pools should be split,” says Böhm. He points out that banks now price their commercial property loans to reflect the different degrees of risk involved, and that it was not unreasonable for bond investors to require the same consideration. However, issuers continue to oppose the need for such a move. They say the pfandbrief legal framework offers investors adequate protection while the transparency of the cover pools allows them to choose the type of investment that most closely meets their requirements.

“They can decide themselves what kind of strategy suits them best,” says the VDP spokesman. He points to mortgage pfandbriefe backed 100% by residential mortgages: “If you like to take entirely residential mortgage risk, you find such bonds, too,” he says. While that is clearly the case, it is equally evident that issuing banks that have high concentrations of commercial loans in their cover pools are going to have to pay progressively more for the privilege.

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