Covered Bonds

Unione di Banche Italiane (UBI) and Monte dei Paschi di Siena (MPS) followed Banca Carige with €750m covered bond benchmarks on Tuesday. Like Monday’s deal from Carige, the two transactions were barely subscribed despite generous pricing, and heavily relied on demand from the Eurosystem.

Four issuers launched covered bonds on Tuesday following the four that launched deals on Monday, doubling supply from €3bn to €6bn so far this week. By virtue of its size, Compagnie de Financement Foncier’s (CFF) €1.25bn benchmark stood out, but the level of demand was far below its previous five year even though the concession was several times larger.

Covered bond sentiment has improved slightly from June, with investors becoming less pessimistic, according to a survey compiled by Crédit Agricole CIB research. Issuers have become less optimistic, but overall it is still a sellers’ market.

Moody’s has assigned a provisional Aaa rating to €8.6bn of class ‘A’ notes to be issued by FCT Crédit Agricole Habitat 2015, a vehicle for home loans originated by 39 regional French banks belonging to Crédit Agricole.

WL BANK AG has mandated leads for an eight year mortgage backed covered bond and Banca Monte dei Paschi di Siena (MPS) has mandated leads for its first conditional pass through, a long six year. Both transactions are likely to be priced on Tuesday.

Banca Carige raised €500m of five year covered bond funding on Monday with the rare 100bp spread providing enough juice to tempt some investors into the book, despite its junk rating from Moody’s.

LBBW issued a six year €500m German public sector Pfandbrief on Monday, pricing in line with Berlin Hyp and Muenchener Hyp.

The UK’s Nationwide Building Society issued its fourth covered bond of 2015 which at €1bn, was larger than the other deals in the market on Monday, yet it still attracted a decently oversubscribed book even with a new issue premium that was smaller than any deal seen last week.

Santander Totta issued the second only covered bond from Portugal this year on Monday. Despite a low cover ratio the deal was diversely distributed.

When Kommunalkredit’s split into KA Finanz and KA New was firmed up seven months ago, KA Finanz’s covered bonds looked like they would fare better than KA New’s. Late on Friday this view was officially confirmed, when the issuer said it would stick with 28% overcollateralization (OC).

Barclays became the sixth bank to seek the consent of investors to switch a number of hard bullet covered bonds to soft bullet maturities. A successful outcome is likely, which will remove onerous collateral obligations under the pre maturity test.

The European Banking Authority (EBA) has recommended that the European Commission (EC) excludes covered bonds from a uniform definition of Mortgage Lending Value (MLV).