Covered Bonds

Belfius Bank on Tuesday launched a tightly priced five year covered bond that was easily digested, thanks to its relatively small size. Meanwhile, Kommunalkredit Austria and Commerzbank named leads for deals to be launched following respective roadshows.

Banca Carige’s covered bonds widened sharply in the secondary market on Thursday amid continued weakness among recent issues, and some selling of second tier peripheral credits.

Commerzbank hit the road this week to update investors about changes to its SME covered bond programme. However, a second SME deal off the programme will have to wait until it emerges from blackout, lead banks said.

Fitch has set out how its ratings of covered bonds will be constrained by the credit quality of sovereign risk. Its criteria exposure draft gives specifics on how the agency embeds sovereign default risk in its ratings stresses.

BPCE won widespread praise for pricing its €1.5bn six year covered bond on Wednesday with an usually attractive new issue premium. Bankers on and off the deal applauded the move, as did investors, who have been sorely disappointed by this year’s poorly performing transactions.

Kommunalkredit Austria appointed joint leads on Tuesday for a public sector backed deal likely to be launched after a roadshow.

The covered bond primary market sprang back to life on Tuesday as Belfius Bank launched a €500m five year, while Kommunalkredit Austria named leads for a deal to be launched following a roadshow (see other story).

Depfa was little changed in the secondary market on Tuesday, despite having delayed its sale, while dealers reported that the general market had stabilised after earlier weakness.

Covered bond ratings stabilised over the final quarter of 2013, according to Standard & Poor’s. Country risk will continue to influence ratings this year, it predicts, while covered bonds will still play a big part in bank funding, as credit conditions remain negative.

Belfius Bank has mandated joint leads for a deal to be launched on Tuesday. Meanwhile, secondary market spreads have stabilised, and Irish bonds have outperformed following the country’s rating upgrade. Despite a mixed secondary market tone, investors are bullish on core prospects at the long end due to the curve’s steepness and impact of roll down.

The Italian government is poised to amend the country’s covered bond law to allow issuers to use SME collateral for a new type of dual recourse bank bond, or Obbligazioni Bancarie Collateralizzate, writes Bill Thornhill.

Core covered bond issuers risk triggering a sell-off in the product by attempting to lure deserting investors back with fatter premiums, bankers warned this week as German new issues mostly struggled, writes Bill Thornhill.