Covered Bonds

Portugal’s Banco BPI has launched the second covered bond tender of the year, offering a slim premium for its first covered buyback, though rising fears of a Portuguese default could provide an added incentive for investors.

Portugal’s Banco BPI launched the second covered bond tender of the year on Thursday and market participants expect more to follow ahead of the European Central Bank’s second Long Term Refinancing Operation in February.

At first glance, issuance of all covered bonds appears to be little changed this year from the last. But look a bit closer and it becomes clear that the market has been starved of publicly syndicated Eurozone benchmarks.

With many European bank issuers either in blackout or happily ensconced in the ECB’s generous bosom, this week’s four benchmark deals all came from outside the Eurozone, continuing the year’s predominant trend in the covered bond market.

Suggestions that UniCredit plans to raise a €25bn covered bond to take advantage of investor demand are misleading, a member of its treasury team told EuroWeek.

The primary market remained closed on Wednesday, and in the absence of supply, secondary spreads rapidly tightened – suggesting issuers have every reason to bide their time.

A year on year comparison reveals that the covered bond market is starved of Eurozone supply, particularly in short maturities and noticeably from Germany. Though a new issuer has applied for a Pfandbrief licence, the picture is not likely to change soon and, despite the precarious sovereign backdrop, bankers say spreads could tighten by another 50bp-100bp.

Portugal’s Banco BPI launched the second covered bond tender of the year on Thursday and market participants expect more to follow ahead of the second Long Term Refinancing Operation in February.

Suggestions that UniCredit plans to raise a €25bn covered bond to take advantage of current investor demand are misleading, a source close to the bank’s treasury has told The Cover.

French courts threw out contractual rights when they ruled to protect the owners of the Coeur Défense tower from their creditors. But the answer to this isn’t self-righteous indignation. It’s to beware of any market that’s never seen a default.

With many French and Scandinavian issuers in blackout, the European covered bond pipeline is light on potential candidates for primary supply. Dwindling issuance is forcing investors to look at the secondary market for paper and has contributed to some spread tightening, particularly for Spanish Cédulas, making the prospect of a publicly sold deal from a Spanish national champion not quite so far fetched.