Moody’s has raised the Timely Payment Indicators of seven Swedish covered bond programmes from “probable” to “probable-high”, its third highest TPI category, to reflect the relative strength of the Swedish covered bond market, it said yesterday (Monday).

The issuers that now benefit from the higher TPI are: Nordea Hypotek; Swedbank Mortgage; Stadshypotek for both its Swedish and Norwegian cover pools; SEB, the Swedish Covered Bond Corporation; and Länsförsäkringar Hypotek. Moody’s said that it had analysed each programme on its own merits.

“The revised TPIs of Probable-High reflect the relative strength of Swedish covered bonds, which have become established as a core European market in the years following the introduction of the Swedish covered bond law in 2004,” it said.

Moody’s assigned a TPI of “probable” to Swedish covered bonds after the country in 2004 introduced the instrument to replace its previous mortgage bond system, with the lack of a track record a factor in the rating agency’s decision. Moody’s said that the growth of the market since then has been steady and its performance strong.

“Swedish covered bonds are now the key funding instrument for Swedish banks and the Swedish mortgage market,” it said. “Covered bonds are the most important source of funding for lending against residential properties in Sweden.”

Moody’s also noted covered bonds’ importance for domestic investors.

“Support from domestic investors includes strong structural demand from Sweden’s well developed mutual fund and compulsory and voluntary pensions market,” it said. “Given the low levels of Swedish government debt – projected at 35.5% of GDP at year-end 2012, according to the International Monetary Fund – domestic covered bonds are an important alternative investment choice for local investors and Swedish fund managers.

“The Swedish Riksbank has also been publicly supportive of covered bonds as instruments for funding and investment,” Moody’s added.

The rating agency said two key factors driving the new TPI of “probable-high” are, in its words:

(i) the strong liquidity and spread performance of the Swedish covered bond market throughout the2008-9 crisis; and

(ii) the market’s importance to domestic funding and investment

The rating agency also cited as supportive of the TPI:

(i) the 2010 amendment to the covered bond law to improve liquidity for refinancing covered bonds following an issuer default; and

(ii) the good underwriting quality and homogeneity of Swedish residential mortgage loans

Bernd Volk, head of covered bond research at Deutsche Bank, said that, with the different effects of “probable” and “probable-high” TPIs only kicking in at senior ratings of Baa3 or lower, the improved TPI currently makes no difference.

Separately, Moody’s today (Tuesday) withdrew its issuer rating of Landshypotek, which it had in May lowered to Baa2, on stable outlook. The Swedish bank said last month that it was dropping the rating agency ahead of adding a second covered bond rating – Standard & Poor’s rates the issuer and its covered bonds, while Fitch rates the issuer. (See article here.)