Covered Bonds

Intesa Sanpaolo launched a Eu1.5bn 10 year obbligazioni bancarie garantite today (Friday), the first Italian issue of the new year, and one of the most heavily oversubscribed deals of the last two weeks.

Two Swedish transactions appear to have gone smoothly, underscoring in one syndicate banker’s view the “safe haven bid for anything Scandinavian”.

Lloyds TSB and Royal Bank of Scotland came to market last Friday though success was not uniform across the two UK transactions.

A trio of German issuers launched benchmark deals across a range of maturities this week, all of which met with strong domestic demand as cash-rich German investors showed no signs of indigestion.

In a move that may lead to renewed volatility of certain covered bonds, the German regulator, BaFin, sent out a draft letter that aims to clarify how domestic insurance companies treat structured covered bonds for capital adequacy purposes. The harsher treatment has added to concerns that these structures may weaken, though for some investors this may herald an investment opportunity.

The deluge of pent-up covered supply has made it a buyers’ market. One result of this has been a noticeable rise in the new issue premiums necessary to attract investor attention, though even this is no guarantee of smooth execution.

Fitch yesterday (Wednesday) downgraded mortgage backed covered bonds issued by Caja de Ahorros de Murcia from AAA to AA, and removed them from negative review, following its downgrade of Caja Murcia’s issuer rating from A+ to BBB+.

Crédit Agricole has issued a Sfr275m three year Swiss franc covered bond, tapping institutional demand for shortening durations. While extended durations were the order of the day at the end of 2010, some asset managers are expecting a rise in interest rates this year and they are scrambling to shorten the duration of their portfolios.

Eurohypo convinced 75 accounts to participate in a Eu1.25bn five transaction yesterday (Wednesday), the majority of which were real money investors with German interest driving demand.

Austria’s Erste Group Bank has closed books on a Eu1bn 10 year benchmark, which is expectred to price in line with guidance of the low 70bp over mid-swaps area. The rare benchmark, jointly led by Barclays Capital, Credit Agricole, DZ Bank and Erste, has proved a runaway success.

Following successful Spanish and Italian government bond auctions the primary covered bond market picked up pace today with three mandate announcements two of which are from peripheral European jurisdictions. And, while conditions hold out, there are likely to be a few more mandates in the wings.