Issuance of Canadian covered bonds will rebound in 2014 following low levels in 2013, which were the result of issuers establishing programmes to comply with new legislation, Moody’s has forecast.

TD branch, Chinatown, Washington, DC

The rating agency said on Wednesday that it expects covered bonds to be a priority for Canadian banks that have established or are in the process of establishing programmes that comply with the country’s legislative framework, which was introduced in 2012 and prohibits government-insured mortgages from being used in cover pools. Issuance fell by C$4bn year-on-year to C$13bn (Eu8.6bn, US$11.8bn) in 2013, according to Moody’s.

Moody’s said the credit quality of the outstanding 11 covered bond programmes will remain strong and stable under the new framework, with the rating agency assigning a minimum long term rating of Aa3 and a stable outlook to the issuers.

Two issuances under new programmes set up under the framework have already been made, from Canadian Imperial Bank of Commerce (CIBC) and then National Bank of Canada. Except for covered bonds issued by Royal Bank of Canada (RBC) – which has continued issuing under its outstanding programme albeit with amendments – all legacy covered bond programmes in Canada contained government-insured mortgages.

“We expect the four remaining issuers to start issuing under their new compliant programmes in early 2014,” said Moody’s.

Bank of Nova Scotia, Caisse centrale Desjardins du Québec (CDDJ), CIBC, National Bank of Canada and RBC have all established programmes which meet the new requirements.

“We expect the remaining two legacy issuers [Bank of Montreal (BMO) and Toronto-Dominion Bank] to establish legislative programmes in early 2014,” said Moody’s.

The rating agency made the announcement in its 2014 country outlook, in which it maintains a stable outlook for Canada’s covered bonds.

Annual Canadian covered bond issuance had a slow year in 2013

Source: Moody’s