ptsb issuing bond secured on mortgages - probably at 0.4%

For anyone interested in how banks can fund Mortgage portfolios cheaply, PTSB are selling a securitised bond next week to raise EUR 500m.

The effective interest rate will be indicative of how the markets view such portfolios at the moment.

Their last bond issue in Sept 2016 had an effective rate of 0.4%

This is due to close today, and market indications are that is will issue initially with a negative coupon!
Rate will track EURIBOR.

RedOnion said:

it will issue initially with a negative coupon!

Click to expand...

Does this mean that for a €100 euro face value bond with a 0.4% nominal coupon, they will pay, say, €120 for it?

So that when you add up all the 0.4%s, and the €100 capital returned at the end, it will be less than the €120 paid?

Or put it another way, the investors are paying ptsb to mind the money for them?

What term is it?

Brendan

Hi,

The actual rate paid will be negative initially. It's a margin over EURIBOR which is currently negative, so yes, the market is paying PTSB to mind money. If the bond sells above par value it'll make funding even cheaper.

These are usually issued based on portfolio maturity models when it's not a fixed rate, so a decreasing balance over 20 years or so.

The 0.4% coupon was an example from last year.

From Irish Times:
"Pricing achieved on the sale was 42 basis points higher than European inter bank interest rates, with 80 per cent of the total, or €413 million, sold at 28 basis points higher than European inter bank rates. At current rates, the majority will achieve a negative yield on investment."

The term goes out for 40 years!

Ah, I see.

The euribor rate for 12 months is -.183%

Where do I find it for, say, 20 years?

- 18 points + 28 points = +10 points

So how is it negative?

Brendan

No, it's a variable rate. Margin over 3 month EURIBOR, so the rate resets every 3 months.
So currently about -.329 + 28bps.

Yep, spreads are normally expressed by reference to 3-month Euribor.