Currencies

On Friday Fitch put the AA+ rated covered bond programmes of Caffil and CoFF, and the public sector programme of BNP Paribas, on rating watch negative (RWN), following an identical action on the French sovereign earlier last week.

The legal document approving the European Central Bank’s third covered bond purchase programme was published on Friday and takes effect on Saturday, suggesting it would be permitted to start buying covered bonds from Monday. The ECB told The Cover that the legal act was a mere formality and comes as secondary markets have begun to stabilise after volatility earlier this week.

On Thursday the secondary covered market found itself caught between a tumultuous peripheral sovereign market and fevered anticipation of the ECB finally wading into the covered bond market. While traders reported light profit taking in Spanish and Italian names, the strong bid that was seen for periphery names over the last week has evaporated.

S&P downgraded a number of Cédulas Hipotecarias and upgraded one Cédulas Territoriales as it begins to implement its sovereign ceiling methodology. The new ratings are now broadly in line with the other agencies and were expected. The agency is expected to announce revisions to Italian covered bond ratings that are also likely to lead to two downgrades.

La Caisse Centrale Desjardins du Quebec (CCDQ) was back in the euro market on Wednesday with its second five year legislative covered bond of 2014, this time achieving a solid book and pricing at the tight end of guidance. The positive result was in contrast to its disappointing inaugural deal in March. Wednesday’s deal was priced at an expected 2bp pick-up over the stronger Canadian Imperial Bank of Canada’s (CIBC’s) five year trade last Wednesday.

Covered bond yields fell on Tuesday as Bunds rallied following a larger than expected fall in the ZEW business sentiment index and lower than expected inflation data. The European Central Bank (ECB) could be poised to commence buying on Wednesday after its scheduled meeting. Since the ECB is likely to be targeting the spread to government bonds, Pfandbriefe are likely to be on the bank’s shopping list, as they look more attractive than peripheral bonds versus their government bonds.

Goldman Sachs has not given up on its Fixed Income Global Structured Covered Obligation (Figsco). Despite bad publicity, the market has moved in Goldman’s favour since the deal was first announced.

The final text of the European Commission’s (EC) Delegated Act on the Liquidity Coverage Ratio (LCR) says that covered bonds that are not rated will be eligible for inclusion into category 2B. The announcement on Friday shows that the European Commission is keen to reduce reliance on credit ratings and should be another boon for the covered bond market.

Canadian Imperial Bank of Commerce has priced the tightest ever Canadian covered bond issued in euros. The price discovery process was also notable for skipping out guidance and going straight from initial price thoughts (IPT) to final spread.

Czech Raiffeisenbank has mandated leads for the first publicly distributed euro-denominated benchmark Czech covered bond, which is expected to be launched following a roadshow. The transaction, which is eligible for repo with the European Central Bank and documented under English law, could be followed by a string of other Czech covered bond deals denominated in euros.

Sparkasse KölnBonn opened books on Tuesday on an Aaa-rated €500m no-grow 10 year mortgage backed Pfandbrief, its first deal since April 2013 and the sixth 10 year print to come out of Germany in 2014. Bankers on the deal said they could have pushed the rare name through mid-swaps but opted not to, as the issuer wanted to leave room for secondary market performance.

Canadian Imperial Bank of Commerce has mandated leads for its first euro benchmark covered bond of the year. With comparable deals trading through mid-swaps, the transaction has potential to price inside Euribor, even though its bonds are not eligible for the European central bank’s purchase programme.