Austria

Austria’s Hypo Noe Gruppe Bank took advantage of a lone issuance window on Wednesday to launch a strongly oversubscribed public sector backed 10 year trade. The rarity of the issuer, the quality of the collateral and the relative resilience of Austrian Pfandbriefe to recent volatility made the trade compelling. Falling Pfandbrief supply in the primary and public sector buybacks in the secondary, meanwhile, have increased appetite for a shrinking asset class.

Primary supply slowed on Thursday as poor peripheral data helped increase volatility, though the market has €3bn in successful benchmark supply to digest. Berlin Hannoversche Hypothekenbank Aktiengesellschaft (Berlin Hyp) announced a tender of four public sector backed Pfandbrief trades, following a well received public sector backed deal from UniCredit Bank Austria.

UniCredit Bank Austria launched its first benchmark covered bond this year, selling a twice oversubscribed €500m no grow trade on Wednesday. The second public sector backed Pfandbrief in as many days was priced in line with revised guidance, attracting almost 100 accounts.

Austria’s Bawag has invited holders of its €1bn 4.25% 2014 to tender their notes and is willing to buy up to €500m at a spread of mid-swaps plus 55bp. The offer is unusual for being the first covered bond tender from a borrower in core Europe and the first which targets bonds that trade above par.

Erste Group Bank comfortably printed €1bn off the back of the largest ever book for an Austrian covered bond on Wednesday. The successful 10 year offering has opened the door for other Austrian names and put to bed negative headlines following the sovereign’s recent downgrade.

Erste Bank launched the first Austrian benchmark of 2012 on Wednesday. It was also the first Jumbo trade from the region since last May.

Covered bond spreads have survived sweeping sovereign downgrades by Standard & Poor’s on Friday. Only French issuer Dexia was reported wider on Monday morning, while the LTRO cash injection has ensured short dated Spanish and French paper remains highly sought after.

Austria’s Erste Group has said it will increase its use of covered bonds to meet €3bn of long-term funding needs next year. The issuer does not plan to participate at all in the senior unsecured wholesale market in 2012, a segment that provided three quarters of the group’s funding in 2007.

Bank Austria has followed BPCE successfully raising €500m with a five year public sector backed covered bond that priced at the tight end of guidance on the back of an exceptionally granular book. The decision to price ahead of next week’s announcement on the purchase programme caught some bankers by surprise. But with significant central bank demand in the book, it is doubtful whether there would have been much to gain from postponing.

Market indices rallied on Thursday, following the EU’s unveiling of its Grand Plan to remedy the eurozone’s woes. BPCE was quick to capitalise on the upturn, securing nearly four times oversubscription for a minimum €200m tap of its 10 year. Bank Austria also moved swiftly on the positive mood and is taking IOIs for possible pricing this afternoon or Friday. Bank of Montreal showed the strength of US demand on Wednesday, when it attracted $3.75bn of demand for its $2bn three year deal. But the floodgates are unlikely to open fully ahead of November 3 when the ECB will announce details of its purchase programme.

Any benchmark covered bond deals are unlikely to happen before Wednesday when EU leaders unveil their eurozone rescue plan. The lack of any detail emerging from the EU summit has also kept investors sidelined in the secondary market, with traders reporting very limited flows for core and peripheral paper.

European borrowers backed off from issuance on Wednesday after French government bond spreads reached 16-year wides versus Germany. UniCredit Bank Austria had hoped to bring a deal after investor meetings in Helsinki and Copenhagen on Tuesday, but leads unanimously agreed that market conditions were not suitable and they will wait to see the result of weekend headlines following the EU summit.