Panellists at IFR’s annual Pfandbriefe Roundtable on January 21 in Frankfurt discussed a wide range of inter-related topics: the state of the market amid broad volatility; the ongoing impact of the ECB Covered Bond Purchase Programme; prospects for primary issuance in 2016; the potential for green issuance; and, on the regulatory plane, where we’re headed following the European Commission’s covered bonds consultation exercise.
In terms of Pfandbriefe funding, borrowers present at the IFR Roundtable were crystal clear: that the year ahead was expected to be volatile so they were fully prepared to jump on windows of opportunity as they presented themselves. That means a high and constant degree of preparedness to issue – and in benchmark format wherever possible. Negative yields at the short end will either push them out along the curve or tempt them into non-euro issuance as a possible alternative. All of that said, yields and spreads are such that they were confident they would be able to continue capturing good funding levels.
On green matters, it’s fair to say IFR’s panel was less than enthusiastic. The product on the bond side tends to continue being seen as a marketing gimmick in many quarters. But given that investors are increasingly focused on the environmental theme, that fact alone is likely to drive interest from a funding perspective although no-one expects dramatic growth in green Pfandbriefe.
As for the regulatory aspect, IFR’s roundtable was neatly placed between the January 6 response deadline to that EC consultation and the Commission’s own covered bond conference in Brussels on February 1. In that regard, the discussion moderated by IFR was perfectly placed to gain an early flavour of responses to the consultation.
IFR panellists were concerned at the potential direction of travel here. Of course, it’s perfectly reasonable for the Commission to want to understand why the cost and performance of Europe’s national covered bond markets during the eurozone sovereign crisis diverged to the extent they did and to account for the reversion of investor behaviour to national boundaries.
But creating a so-called 29th regime that would exist side-by-side with existing national frameworks and act as a harmonised, standardised pan-European alternative was roundly rejected as a viable option. There was a very clear consensus around the IFR table – and in the market generally – while such a concept might improve liquidity on paper, there is no real need for a pan-European product.
National markets have more than proved their robustness. That doesn’t mean to say they aren’t open to incremental improvements – they are – but the fear is that a new European product acts, in the words of one panellist, as a Trojan horse from Brussels that will come with a whole network of incentives for market participants which will act perversely and unnecessarily to disrupt existing regimes.
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