Issuers were given warnings on the marketing, timing and magnitude of benchmark covered bond issuance at the latest ECBC plenary in Helsinki last week, even if the asset class has ridden out the latest crises to break records and the Covered Bond Label is helping investors.

The discussions were part of the European Covered Bond Council’s 32nd plenary, hosted by the Finnish covered bond community at OP Financial Group’s headquarters on Wednesday of last week (19 April).

After euro benchmark supply set a new high last year, records were also been broken in the first quarter of this year, with the only pause in issuance having been prompted by the failures of Silicon Valley Bank (SVB) and Credit Suisse (CS), noted Thomas Cohrs, head of financial institutions distribution, origination and syndication at Helaba.

“The market is red hot,” he said.

Patrick Seifert, head of primary markets and global syndicate at LBBW, highlighted how the strength of the instrument had been reaffirmed in the wake of the SVB-CS panic, as CIBC reopened the covered bond market and wider financial institutions issuance on 27 March with a €1.5bn four year.

“This was actually the first successful syndicated transaction that managed to reassure the market as a whole,” he said, “so give credit to the product. Perhaps it’s just the latest confirmation of what we have seen for more than 250 years, but the market needs to see the evidence that it’s working.

“It’s clear that not everyone could have reopened the market,” added Seifert, “and from that point of view, CIBC was the right name. There were a number of other names that were certainly suitable – there were also names that simply needed the market to be open first.”

Cohrs said that, more generally, the market needs to be closely monitored for issuance windows, as in 2022, but with the departure of the European Central Bank from the primary market in respect of CBPP3 having heightened execution risk.

“At the right moment, with the right name, you can sell big time,” he said. “If you’re in the wrong moment, with the wrong name, you can sell nothing. Now it’s more important to time issues right and to analyse the market in terms of what prices can be done.

“We have seen in Finland that there’s a wide spread between where some issuers come to market and others, with wide differences in the relevant order books. That’s a good example of how to do things… or how not to do things – I will not comment on which one I believe is which.”

Cohrs meanwhile flagged a €5bn two-tranche Toronto-Dominion Bank trade on 6 March that was the equal-largest ever covered bond transaction as having demonstrated the upside potential of the market.

However, issuers were also warned of the downside of pushing the envelope in volumes, whether on individual deals or a longer term basis. “Super-sizing” deals such that all orders are filled can scare investors, said Steffen Dahmer, global product manager and syndicate for covered bonds at JP Morgan and chair of the ECBC market related issues working group.

The potential impact of heavy and unpredictable supply from a jurisdiction as a whole – something that has been flagged with respect to Austria and Canada, for example – was raised by Frank Will, global head of covered bond research at HSBC and chair of the ECBC EU legislation working group.

“They were suddenly flooding the market with so much supply, that one of the concerns I heard from investors was, how much supply can we expect?” he said. “It’s understandable if for whatever reason an issuer tries to come to the market, but if you see everybody coming through the same door, this could really present a big problem for the market, because you don’t know how long this will go on – particularly in an environment where there is a lot of supply from various markets.

“Just try to give the market a better feeling of what to expect, then they can adjust the price accordingly and be a bit more relaxed.”

Ana Cortés González, portfolio manager, JP Morgan Asset Management, welcomed the diversity of supply on offer in the busy market, including the arrival of new issuers and jurisdictions, but called on issuers to be better prepared to educate investors.

“Whether you are an established issuer or coming from a new jurisdiction, you simply cannot approach an investor and say, I’m offering a covered bond and nothing has happened to a covered bond in 250 years, so I don’t want to answer your questions,” she said. “I have had a couple of calls in the past couple of months where issuers – not necessarily new issuers or from a new jurisdiction, but less frequent issuers, too – have focused solely on their credit story, but when they were asked questions on the covered bond structure itself, they were not forthcoming. For me as an investor, it is really important to understand exactly how the programme works and what would happen in case of an issuer default.

“If new issuers or those from new jurisdictions are coming to the market, it’s worth taking a little bit of time to educate investors, because in my mind that goes a very long way towards making investor comfortable and opening up the market. You have to be prepared.”

This reminded Dahmer of the attitude of a funding official at a now-defunct UK issuer.

“He went to an investor meeting and he was clearly grumpy,” he recalled. “He answered the first question asked by the investor, he answered the second, but the third, he just said, I’m triple-A rated, what else do you need?

“We are past that point.”

Cohrs suggested that one or the other Austrian issuer had been guilty of complacency amid the record supply from the country.

“Last year was a fantastic year for Austrian issuance,” he said. “Most of them went fantastically, but the minority didn’t. Some of these issuers just assumed, well, we come from an established jurisdiction, we have issued before, perhaps something smaller, and especially our neighbours in Germany know us.

“Well, that’s wrong. The German market is a bit peculiar because it’s much more fragmented in terms of investors than most other markets. You’ve just got to go and see a lot of people and explain what an issuer is doing, who they are, and what they are planning, even if that makes it more difficult.”

Cortés González said that in light of the heavy supply and need for information, she turns to the harmonised transparency templates (HTTs) of issuers signed up to the Covered Bond Label.

“It helps me if all of a sudden we’ve got five, six, seven new issuances that we need to be able to judge relatively quickly,” she said.

Elena Bortolotti, global head of covered bonds at Barclays and chair of the ECBC rating agency approaches working group, said this chimed with the industry body’s thinking regarding the Label.

“From our perspective, the more issuers that have the HTT, the better, because it makes life easier for investors,” she said. “And actually last month – I think for the first time – I had an investor say, I’m not buying this bond because it doesn’t have the HTT. So it is becoming more important.”