“We’re seeing lots of good rumours everywhere, so I expect it to be quite a busy week,” said a covered bond syndicate banker in London.
Bayern LB and Correal Credit have been rumoured — but it is Terra Boligkreditt that seems the most likely candidate to issue next as the borrower has finished roadshowing with Commerzbank, Nordea, UBS and UniCredit.
Bankers speculate that the Nordic borrower may well take indications of interest early next week for a potential benchmark deal that will open the door to other borrowers in the Nordic, German, French and UK markets.
“Terra has finished roadshowing and they’re a good candidate for kicking off supply next week and at least two should follow close on its heels,” the same banker said.
Slow start as Fitch digested
But bankers caution that, with Europe off in the latter half of this week, it is likely that Monday next week will start slowly. “People will want to see the market reaction to Fitch’s downgrade of Spain, and sovereign volatility in general,” another UK banker said.
With the Greek election due a week on Sunday, issuers will probably be keen to press ahead with funding plans, however. Further German issuance seems the most likely and, apart from the aforementioned rumoured names several others have not issued this year. These are HVB, Nord LB, Eurohypo/Commerzbank, Deutsche Hypo Hannover and Deutsche Postbank.
“Borrowers that have not yet issued this year are going to look stupid if they don’t take advantage of the exceptionally strong market environment for German names. I know of a number that are looking closely at the market – but nothing has been firmly mandated,” the second banker said.
Though there has been plenty of speculation that a French deal would also surface, bankers felt only a top tier name would be capable. “With France you need to be cautious with pricing and the name, but investors are cash rich and hungry for yield, so I expect a decent reception should one of the big banks step up to the plate,” the same banker said.
Whilst there have been a number of Swedish issuers that have not brought deals this year, they do have the luxury of a strong domestic market and also have established US dollar programmes.
SEB, SCBC and Länsförsäkringar Hypotek have not issued benchmarks so far this year.
Forced Cédulas sellers feared
Otherwise, Spain continues to dominate the headlines after Fitch downgraded the sovereign by a severe three notches to triple B on Thursday. Analysts at RBS said the rating move would have a severely negative impact on sovereign spreads – this being the lowest rating for Spain with Fitch being the second of the three major rating agencies to put Spain in the triple-B range.
Under a planned new covered bond rating approach, Fitch would cap Cédulas ratings at just single A. “Any further downgrades of the Kingdom of Spain could trigger some forced selling as many rates investors are not allowed to hold triple-B rated paper,” said RBS analysts.
After relatively successful auctions earlier in the week catapulted Spanish bonds higher, taking the 10 year yield down from 6.32% to 5.898% on Thursday, the 10 year Bono yield returned to 6.26% on Friday morning.
Despite that, cédulas spreads have traded steadily so far on Friday – though this is probably more a reflection of the holiday induced lack liquidity than a true reflection of risk.
EBA asks what data to collect
In other regulatory news the European Banking Authority said on Thursday that it had not yet finalised a list of liquid assets that it will monitor. The EBA said it will collect data on certain assets “for the purpose of its economic impact assessment even in cases where they would not meet certain criteria,” such as central bank repo eligibility.
The EBA will devise a data collection template for assets specifically listed by the European Commission’s proposal – but has asked the industry to “suggest additional asset classes to be included in the reporting” without prejudice to their eligibility for the Liquidity Coverage Ratio (LCR).
The implication is that the EBA could also start monitoring ABS amongst other markets for inclusion into the LCR.