汇丰银行-全球-债券市场-担保债券季报：冰冻下的担保债券-2019.6-94页.pdf

Disclosures&Disclaimer:This report must be read with the disclosures and the analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it.Asset/SubcategoryCovered Bond QuarterlyQ2 2019Fixed Income/GlobalFixed Income GlobalQ2 2019By:Frank Will and Sebastian von KossCovered Bond Quarterly Covered Bonds in the FreezerRoughly of the covered bond market has a negative yieldLess attractive TLTRO-III conditions could lead to more covered bond supplyWe see rising underperformance risks for the sector 1 Fixed Income Global Q2 2019 Executive Summary 2 Covered bond quarterly:Covered bonds in the freezer 2 Covered bonds in the freezer 3 New TLTRO-III conditions less attractive 7 Covered bond issuance caps 9 Supply trends in 2019 10 High tapping activity even at sub-benchmark level 13 Investor demand analysis 15 Green,social and sustainable covered bonds 20 Covered bonds vs other asset classes 24 Political risks 28 UK covered bonds unfazed by political uncertainty 28 Italy:Political uncertainty increases downside potential of OBGs 30 Country recommendations 32 Our recommendations by country 32 Australia(overweight)34 Austria(neutral)36 Belgium(neutral)38 Canada(neutral)39 Denmark(neutral)43 Finland(underweight)45 France(neutral)47 Germany(neutral)49 Greece(underweight)50 Ireland(underweight)52 Italy(underweight)54 Japan(neutral)55 Korea(overweight)57 Luxembourg(overweight)59 The Netherlands(neutral)60 New Zealand(overweight)62 Norway(overweight)64 Poland(overweight)66 Portugal(neutral)68 Singapore(overweight)69 Slovakia(overweight)71 Spain(neutral)74 Sweden(neutral)76 Switzerland(overweight)78 Turkey(underweight)79 The UK(neutral)81 Risks to our country views 84 Disclosure appendix 86 Disclaimer 92 Contents Fixed Income Global Q2 2019 2 Covered bond quarterly:Covered bonds in the freezer Negative yields drive mildly bearish sector call:With sovereign bond yields hitting historical lows and no hope for a less dovish ECB policy in the near term,covered bond yields have significantly fallen since the beginning of the year.Currently,more than three-quarters of the volume-weighted EUR covered bond market trade at negative yields.We fear that the current low yields could have a negative impact on covered bond demand by real money investors.Currently demand remains strong,largely driven by bank treasuries shifting the cash parked at the ECB into higher yielding asset classes such as covered bonds.However,there are first signs of a slowdown in demand and we fear that if covered bond yields get closer to the deposit facility threshold of-0.4%,bank treasuries could become reluctant to buy more covered bonds,rather preferring to leave their cash at the ECB.Against this background,we lowered our covered bond sector call from neutral to mildly bearish on 12 June 2019.TLTRO III:The terms of the new TLTRO III are less attractive than those of its predecessor and also more expensive than the current 2-year covered bond funding levels of many banks.Given the preference of covered bond issuers for longer maturities combined with the currently relatively flat funding curves of most issuers,we believe that many of them will favour medium-or long-term covered bond funding over the new TLTRO programme.We raise our supply forecast:We believe that the less favourable conditions of the TLTRO III will boost covered bond supply.On top of that we saw the emergence of new issuers from Slovakia,Japan and Korea as well as Danish Ship Finance in recent months.These issuers already add up to EUR3bn year-to-date.We therefore raise our full-year gross supply forecast from EUR130-140bn to up to EUR150bn.Covered bond issuance caps:Last month,the Canadian OSFI replaced the 4%issuance limit with an encumbrance limit of 5.5%.We take this an opportunity to provide an overview on the various covered bond issuance limits around the globe.High tapping activity:This year we have seen an increase in the tapping activity of covered bond issuers,particularly by but not limited to French and German issuers.Some of these taps increased the bond volumes from sub-benchmark size to benchmark size(or close to benchmark size),which offers interesting trading opportunities,as investors tend to demand an illiquidity premium for sub-benchmark covered bonds.Country-by-country recommendations:Following recent new issues out of Japan,Korea and Slovakia,we initiate coverage of all three countries.We currently have a neutral recommendation on Japanese covered bonds despite the attractive spread,given the fact that Japan does not have a legal covered bond framework.We recommend to overweight Korean covered bonds as they trade roughly 10-15bp above Singaporean covered bonds,which seems too high,in our view.We also have Slovakian covered bonds on overweight.They offer an attractive pick-up vs most other Eurozone countries,even from the periphery.Moreover,we recently changed our recommendation on Canadian covered bonds from overweight to neutral as the pick up over most EU covered bonds tightened to a level that we believe no longer justifies an overweight recommendation.Executive Summary 3 Fixed Income Global Q2 2019 Covered bonds in the freezer Since October 2018,we have seen a significant drop in government yields with 10-year Bund yields hitting new historical lows this month(chart 1).Against the backdrop of lacklustre economic performance in many Eurozone countries and low Eurozone inflation readings,any hopes for a less dovish ECB policy and a potential increase in the rate of the deposit facility vanished into thin air towards the end of last year.Moreover,with the 5-year/5-year inflation forward dropping to record lows(chart 2),a meaningful short-term recovery of yields seems illusive at this point.Following comments by ECB president Mario Draghi at an ECB conference in Sintra on 18 June that further rates cuts remain part of the ECBs tools and that there was considerable headroom to re-start bond purchases,government yields across Europe dropped further,with the 10-year Bund yields even falling below the-0.3%mark and 10-year OATs hitting on an intraday basis negative yield territory.Chart 1:10-year government yields Chart 2:Eurozone inflation Source:HSBC,Bloomberg Source:HSBC,Bloomberg Unsurprisingly,the covered bond market has not been able to decouple from this trend and reacted though with a three-month time lag to the movements in the government bond sector.Chart 3 shows that the covered bond yields have significantly fallen since the beginning of the year and that this trend could be observed across the curve.Currently,more than three-quarters of the volume-weighted EUR covered bond market trade at negative yields.At the beginning of the year,not even a third of the market had negative yields.Thus our tongue-in-cheek cover picture depicts the typical covered bond buyer shopping in the sub-zero section of the financial markets.-0.50.00.51.01.52.02.5Jul 18Oct 18Jan 19Apr 19Yield in%10Y Germany10Y France10Y NL10Y Spain1.01.21.41.61.82.02.22.4-1.0-0.50.00.51.01.52.02.5201420152016201720182019in%Eurozone inflationEUR 5Y5Y inflation Fixed Income Global Q2 2019 4 Chart 3:Lower covered bond yields across the curve Source:HSBC,MarkIt In terms of maturity brackets,the 1-3 year and the 3-5 year iBoxx covered bond indices are currently in negative yield territory.The country-by-country comparison(chart 4)shows that in particular the covered bond markets in the core Eurozone as well as in the Nordic region have high portions of their markets at negative yields.Many Canadian and Australian covered bonds also trade below the 0%threshold.That said,also the entire Irish covered bond market has negative yields.At the other end,we have Greece and Turkey as well as Korea.Italy and Poland have relative low shares as well.The reason why only a relatively small portion of the Dutch covered bonds trades at negative yield is the long average maturity of the Dutch market segment.Chart 4:Covered bond with negative yields by country Source:HSBC,Bloomberg Table 1 provides the percentages of covered bonds with negative yields by country and maturity bracket.Looking again at the Dutch example shows that all covered bonds in the 1-3 year as well as in the 4-6 year maturity bracket have negative yields.However,as the longer maturity brackets make up more than half of the Dutch covered bond market,the overall share of bonds with negative yields is just 51%.At the other end,we have the shrinking Swiss covered bond market where we dont have any bonds with a maturity of more than three years and where 100%of the covered bonds have negative yields.-0.40-0.200.000.200.400.600.801.001.20Jul.18Sep.18Nov.18Jan.19Mar.19May.19Yiled in%1-3 yrs3-5 yrs5-7 yrs7-10 yrs0%20%40%60%80%100%CH IE LU CA NO GB SE DK FI DE BE NZ AT SG FR ES PT AU JP PL NLIT GR KR TRnegative yieldspositive yields4-Jan-19Table 1 provides the shares of covered bonds with negative yields by country and maturity bracket 5 Fixed Income Global Q2 2019 Table 1:Shares of covered bonds with negative yields by country and maturity bracket Source:HSBC,Bloomberg We fear that the current low yields could have a negative impact on covered bond demand by real money investors.While bank treasuries are more swap spread-driven,many real money investors such as asset managers,pension funds or insurance companies primarily focus on the actual yield levels.Currently demand remains strong,being largely driven by bank treasuries shifting the cash parked at the ECB into higher yielding asset classes such as covered bonds.However,there are first signs of a slowdown in demand and we fear that if covered bond yields get closer to the deposit facility threshold of-0.4%,bank treasuries could become reluctant to buy more covered bonds,rather preferring to leave their cash at the ECB.%Neg.yields1-3Y4-6Y7-8Y9-10Y10Y+AT82%100%100%72%-AU72%100%77%-BE85%100%100%45%-CA98%100%100%-CH100%100%-DE88%100%100%90%-DK91%100%100%-ES79%100%93%33%-FI90%100%100%75%-FR81%100%99%57%-GB94%100%100%-GR-IE100%100%100%-IT39%75%26%-JP67%-100%-KR-LU100%100%100%-NL51%100%100%48%-NO95%100%100%100%-NZ83%100%67%-PL63%100%33%-PT75%79%100%-SE93%100%100%69%-SG81%100%69%-TR-We fear that the current low yields could hurt demand Fixed Income Global Q2 2019 6 Chart 5:Covered bonds vs other asset classes Source:HSBC,MarkIt Against this background,we lowered our covered bond sector call from neutral to mildly bearish on 12 June 2019,as we see a rising risk of spread widening.So far,the EUR covered bond market has proven quite resilient compared to the corporate and senior unsecured bank sectors(chart 5).However,over the last few weeks,the spread tightening trend of covered bonds has come to a halt as well.The primary market also feels a bit softer,underlined by the slightly higher new issue premiums of the recent deals and oversubscribed but no longer exceptionally large order books.On 12 June 2019,we lowered our covered bond sector call from neutral to mildly bearish Moreover,as mentioned above more than three-quarters of the covered bond market currently trades at negative yields and,of the Eurozone countries,only Greece,Italy and Portugal have short-term covered bond yields considerably above the-30bp mark.This means that from a relative value perspective,the terms of the new TLTRO-III programme look similar to the levels many issuers can get in the two-year covered bond market(for more details see section New TLTRO-III conditions less attractive below).Taking into account the general preference of covered bond issuers for longer maturities,combined with the relatively flat funding curve of most issuers,we believe many of them will favour medium-or long-term covered bond funding over the new TLTRO programme.Having said that,the outstanding TLTRO-II volumes are huge(EUR719bn)too large,in our view,to be absorbed by the covered bond market,even if a large portion of the TLTRO transactions are probably carry trades.To put these figures into context,the average annual supply volumes by Eurozone issuers over the last five years was less than EUR90bn.This means we are likely to see relatively more covered bond supply until year-end(the supply volumes of the last two weeks have probably given you a first taste),which could lead to wider spreads especially since large parts of the covered bond market trade at negative yields.Moreover,we are not convinced that the historically high correlation to the credit market has broken down completely and so see additional pressure building up from this side.020406080100120140Oct 18Nov 18Dec 18Jan 19Feb 19Mar 19Apr 19May 19Jun 19Spreads vs swapsAchsentitelSenior Bail-in(banks)Senior Preferred(banks)Covered BondsSenior(corporates)7 Fixed Income Global Q2 2019 New TLTRO-III conditions less attractive On 6 June,the ECB published the terms of the new targeted longer-term refinancing operations(TLTRO III).The lower bound of the rate was set at the deposit rate plus 10bp.Currently,this equals-30bp which is slightly higher than the rate of the previous programme and also more expensive than the 2-year covered bond funding levels in many countries(chart 6).The TLTRO-III details are as follows:Interest rate:The interest rate in each operation is a variable rate,set at a level that is 10bp above the average rate of the main refinancing rate over the life of the respective TLTRO.Discounted rate:Only those banks which eligible net lending exceeds the lending benchmark,will be able to benefit from a lower rate which can be as low as the average rate on the deposit facility over the life of the operation plus 10bp.No early repayments:TLTRO III operations cannot be repaid before maturity,i.e.a roll-over into the last TLTRO tranche is not possible.Chart 6:Average 1-3 year covered bond yields by country Source:ECB,HSBC(as of 17 June 2019)Lending requirements Under the TLTRO-III programme,eligible counterparties can borrow up to 30%of the stock of eligible loans as at 28 February 2019.This amount is,however,reduced by any outstanding amount borrowed under the TLTRO II.As mentioned above,the rate of the TLTRO-III operations will depend on the lending volumes of the respective banks:For counterparties that exhibited positive eligible net lending in the 12-month period to 31 March 2019,the benchmark net lending is set at zero.For counterparties that exhibited negative eligible net lending in the aforementioned 12-month period,the benchmark net lending is equal to the eligible net lending in that period.For counterparties whose eligible net lending between the end of March 2019 and the end of March 2021 exceeds their benchmark net lending,the rate can be as low as the average deposit rate over the life of the respective operation plus 10bp.The maximum rate reduction applies if a bank increases its benchmark stock of eligible loans by at least 2.5%by end-March 2021.0.45-0.01-0.13-0.21-0.32-0.32-0.35-0.36-0.37-0.37-0.38-0.38-0.50-0.40-0.30-0.20-0.100.000.100.200.300.400.50Gr