Covered Bonds

Italian insurer Generali and UK lender Abbey National have both mandated leads for euro senior deals with more issuers expected to follow later this week, once several European countries return to work after Monday’s Epiphany holiday.

Four issuers from Finland, France, Australia and the UK are set to price covered bonds on Tuesday and Wednesday. Market conditions are broadly constructive, especially for higher yielding names, said bankers, but core issuers might have to offer concessions to tempt investors in a busy start to the year.

Changes to Italy’s covered bond law improve the segregation of cover pool assets and are good for the market, according to Moody’s.

South Korea and Singapore are all looking to drive covered bond issuance this year with new frameworks.

The European Banking Authority wants covered bonds to stay in the second tier of asset classes that can count as liquid assets for European banks, dashing market hopes that it would back up its own recent findings that covered bonds were nearly as liquid as sovereign debt.

Banks in the Netherlands are expected to finally prepare to print additional tier one capital in 2014, after the country removed the final barrier to issuance by ruling that AT1 instruments will be tax-deductible from January 1. The country’s banks are expected to be joined by Italian names in debut AT1 issuance — but Germany is still yet to resolve the tax issue.

The European Banking Authority wants covered bonds to stay in the second tier of asset classes that can count as liquid assets for European banks, dashing market hopes that it would back up its own recent findings that covered bonds were nearly as liquid as sovereign debt.

Issuers will enjoy an even more benign market backdrop when they return in January, covered bond bankers said on Thursday, after markets took the first piece of tapering from the US Federal Reserve in their stride. The bigger challenge for core issuers will be to work out how much of a concession will be required to offset tight spreads and attract big order books, bankers said.

The primary FIG markets are finally winding down in the run up to the Christmas holidays, with no new deals being launched this week. A mystery capital issuer postponed its deal until the new year, while UBS and Yorkshire Building Society closed liability management exercises — but the only real activity is among regulators.

The ICMA Covered Bond Investor Council is the latest body to support the promotion of covered bonds to the top tier of bank liquidity buckets in the Capital Requirements Regulation.

Covered bonds look set for improved ratings from Fitch, as it plans to amend its rating criteria to take into account their exemption from bail-in. The news comes after Moody’s said covered bonds could be upgraded in 2014.

A better macroeconomic outlook and more transparency were two reasons why Moody’s chose to upgrade the ratings of a dozen Spanish covered bond programmes. The move presages spread tightening in the New Year when liquidity returns, traders said on Monday, with second tier Spanish covered bond programmes set to move closer to those of the country’s national champions.