Covered Bonds

The secondary market traded stably on Thursday, with offers at marginally tighter levels compared to Wednesday. Several houses reported good Street driven short covering interest in the French two to five year area and spreads are thought to be around 10bp tighter on the week.

Convincing 136 accounts from 19 countries to participate in a €2bn benchmark, DnB Nor brought the transaction many syndicate officials had been waiting for.

Europe’s banks need to give US covered bond investors more detail and with more frequency if they are to retain access to the coveted buyer base, fund managers have told the industry.

Italy should amend its Obbligazioni Bancarie Garantite law to reduce refinancing risk in the event of an issuer default and give investors a better chance of a full recovery, a conference in Milan heard this week.

Australia’s first covered bond deal could happen before the end of this year, after bipartisan support in the lower house of parliament approved the Australian Banking Amendment (Covered Bonds) Bill 2011 this week.

Finland’s Sampo Housing Loan Bank launched a five year deal on Wednesday, three weeks after it finished a European roadshow. The deal attracted a wide range of accounts and looks assured of success, boding well for other smaller bank issuance.

BNP Paribas has structured two French RMBS deals totalling €1.61bn, which will be retained – suggesting the bank is building its reserves of top-rated collateral. The French bank retained few ABS or covered bonds between 2007 and this year, with only one senior deal kept on the books, Phedina 2010.

The European pipeline is starting to improve with many banks taking the view that it might be better to issue ahead of the CB purchasing programme, just in case the G20 fails to co-ordinate a set of macro measures to deal with the wider macro environment. Co-op is conducting a roadshow, Sampo has entered blackout and there is talk of a German issue before month end.

Secondary activity in the covered bond market is picking up, with a slew of deals and merger activity spiking interest. DexMA is performing but Dexia Kommunalbank is rudderless. Banco Pastor has tightened and Caixa Catalunya has seen some interest. Tier one French names are also enjoying better selling. More generally, stronger ECB rate cut expectations mean the short end is well supported.

Moody’s has placed Banco Popular’s ratings on review for downgrade following an exchange offer from the bank for 100% of Banco Pastor’s shares and mandatory convertibles.

DnB Nor proved jumbo transactions with minimal premia were possible on Tuesday, launching a well received five year trade expected to be €2bn in size. Credit Suisse meanwhile paid up handsomely for a seven year transaction not helped by the difficult tenor.