Covered Bonds

Moody’s has downgraded Credito Emiliano’s mortgage covered bonds from Aaa to Aa1 and Intesa Sanpaolo’s public sector covered bonds from Aa1 to Aa3, following reassessment of over-collateralisation (OC) levels in both programmes.

Fitch has downgraded Banco Popolare di Milano’s OBGs from AAA to AA+ and kept them on rating watch negative because of a downgrade of BPM and seven other Italian banks on November 25.

Realkredit Danmark looks set to secure lower interest rates next year on adjustable rate mortgages after a successful week of bond auctions. Foreign investors have been marginally more active than last year in the bond sales, according to Danish brokers on the deal, confirming that Denmark retains safe haven status. Nykredit started its refinancing sale on Tuesday and will hope to emulate Realkredit's success.

Moody’s has placed Aktia Real Estate Mortgage Bank’s covered bonds on review for downgrade after taking the same action on the bank’s A1 senior rating, partly due to its reliance on covered bonds as a funding tool.

National Australia Bank’s UK Clydesdale Bank subsidiary looks set to undertake its first wholesale mortgage financing exercise since 2007 in the RMBS market, as opposed to covered bonds. The borrower had roadshowed a newly set-up covered bond programme in summer, but this has since been sidelined. The RMBS funding is not only more cost efficient but also less onerous from a ratings perspective compared to a covered bond.

ECB purchasing reached €930m on a settlement basis by the end of last week, with traders reporting buying of German, French, and some Spanish paper in the secondary market. The impact of the programme remains limited, however, and there have been calls for the eurosystem central banks to make bonds purchased under the programme available for bilateral repo purposes.

The Covered Bond Investor Council (CBIC) will publish the latest set of questions from a national organisation on its transparency initiative next week. Finance Norway (FNO), a trade organisation for the country’s financial institutions, has technical questions regarding the transparency guidelines, which aim to provide crucial information for investors.

Covered bond participants are anxiously looking to developments in the wider market in the hope that a resolution to the sovereign impasse is found. But, in the event nothing is agreed, contingency plans are now being made. Some syndicate bankers are hoping that the EU summit meeting in Brussels on December 9 will yield progress. Tap issuance is possible, but with the market as it is some bank holders believe there is more sense in remaining short some bonds.

Bankers under fire for their part in last week’s heavily criticised inaugural spate of Australian covered bond deals hit back at their critics this week.

The ECB’s second covered bond purchase programme is already well behind schedule, after only two weeks of business. By the end of Thursday, it had made only €891m of purchases — barely one third of the amount that it needs to buy over the whole month to stay on track for its €40bn programme target.

As primary supply remains elusive, focus is shifting towards the New Year and the question of whether issuance will resume when the market restarts in January. Syndicate bankers were reluctant to suggest either a solid reopening, or continuing malaise.

Apart from the measly €111m recently purchased by the ECB, liquidity has all but dried up, as bankers increasingly look to close down their risk books ahead of the year end. France is once again the focus of attention, with Dexia and BPCE singled out for special attention. Yet, several houses reported good demand for very short dated German and Scandinavian issuance, as asset managers look to park liquidity.