Covered Bonds

Moody’s initiated or continued reviews for downgrade on 12 German banks on Monday, because of potential challenges to the banks’ relatively high systemic support assumptions, and a reluctance of some German savings banks to support their larger Landesbanken.

Finland’s OP Mortgage Bank came to market on Friday with the first seven year Scandinavian covered bond of the year, pricing a no-grow Eu1bn trade. Despite the bank’s prime Scandinavian collateral, the transaction fell just short of Eu1bn of orders.

LBBW sold its inaugural public mortgage backed transaction on Monday, the first borrower to bring a deal on a Monday morning since late March. A long awaited trade from Crédit Mutuel CIC Home Loan was also announced. Leads took indications of interest this morning for the borrower’s debut Obligations à l'Habitat, which follows BNP Paribas’ first euro outing in the OH format at the end of last week.

BNP Home Loan SFH will price its first euro covered bond under the new Obligations de Financement de l'Habitat format later today. The first benchmark deal since the Greek parliament approved austerity measures on Wednesday, BNP’s 10 year Jumbo appeared entirely unaffected by any residual market concerns, drawing Eu2.7bn of orders from over 100 accounts.

After more than a week without primary euro issuance, BNP Paribas and OP Mortgage Bank on Friday broke ranks and opened books on 10 a year and seven year deal respectively. BNP closed books on a well received Eu2bn transaction by mid-morning, while execution on OP’s Eu1bn no-grow deal was less straightforward.

Moody's today announced senior unsecured bond downgrades for three Danish banks. As a result the over-collateralisation levels of the covered bonds issued by these banks needs to be raised to maintain current ratings. Whether or not local banks choose to keep Moody’s and post significantly more collateral is, as yet, undecided, but after Realkredit Danmark’s decision to drop the agency, it’s possible that others will follow its lead.

Following a transfer of La Caixa’s banking activities to CaixaBank, Moody’s has assigned a Aaa rating to mortgage backed covered bonds now assumed by CaixaBank.

After more than a week without primary euro issuance, BNP Paribas and OP Mortgage Bank on Friday broke rank from the sidelines and opened books for 10 year and seven year deals respectively. BNP Paribas had closed books on a well received Eu2bn transaction by mid-morning, while execution on OP’s Eu1bn no-grow deal was less straightforward.

The passage of the austerity bill through the Greek parliament on Wednesday has ushered in a period of mild relief in the covered bond market, but syndicate officials do not expect large volumes of primary issuance. Windows are likely to be short, which will suit established names that can move quickly.

While the euro covered bond market slows, the dollar pipeline continues to build. Cheap funding and diversification are attracting issuers, while US demand for trusted European names remains unabated. Dollar issuance is expected to expand in the latter half of 2011, which may have the added bonus of supporting the case for US covered bonds. The latest incarnation of the US Covered Bond Act of 2011 has been well received by market participants, including Moody’s, which published a statement on the amended bill on Monday.

A rapid series of punishing ratings actions has left Moody’s and Denmark’s banks at war, with Realkredit — the country’s second largest mortgage lender and a key part of Danske Bank — dumping the US agency and others considering following suit.