Currencies

Around 90 deals have priced so far this year with varying results. The Cover compares these by the depth of demand, the breadth of distribution and pricing both globally and across each region.

The focus of activity in covered bonds was squarely on Banco Espirito Santo on Tuesday morning with bankers reporting that its one outstanding publicly placed covered bond had widened by 25bp from last Friday. In contrast to the bank’s subordinated debt, which risks being completely wiped out, there is a strong expectation its covered bonds will be fully redeemed on time. However, further mark to market pressure is likely. With Portugal on review for an upgrade, the covered bonds of Santander Totta and CGD present value.

German bankers, who have been busy nursing their sore heads after celebrating their country’s World Cup victory on Sunday night, will not have been overly burdened by DG Hypothekenbank’s drive-by Pfandbrief syndication on Monday. Being the rarest issuer from one of the most technically squeezed jurisdictions in Europe, a strong outcome was never in doubt. Painkillers may however be required for the allocation process.

Bankers expect more bad news to come out of Portugal and the correction being seen in peripheral covered bonds may therefore have further to go. But this bad news fundamentally does not change the positive longer term picture for the rest of peripheral Europe. A technical retracement had been long overdue and will provide a rare buying opportunity for real money investors and banks looking to cover their shorts.

Three issuers launched covered bonds this week with varying results, which suggested that the converging trend between core and peripheral Europe has stalled. Banca Monte dei Paschi di Siena (MPS) struggled to attract anything like the demand seen in its previous covered bond as Portuguese woes outweighed the programme’s rating upgrade into investment grade territory.

DG Hypothekenbank has mandated leads for a seven year mortgage covered bond to be launched early next week.

HSH Nordbank opened books on Thursday for a deal which took advantage of Europe’s core markets’ recent tightening versus its periphery. Leads produced an oversubscribed book as Bunds rallied and peripheral sovereigns continued to struggle.

Goldman Sachs will give investors more time to understand the unique structure of its Fixed Income Global Structured Covered Obligation (Figsco) and appreciate just how different it is from a pure market value deal, or a covered bond (This story has one comment).

HSH Nordbank has mandated joint leads for a €500m five year mortgage Pfandbrief, which is expected to be priced on Thursday. Market conditions for core issuers look favourable with Bund yields tightening further.

Banca Monte dei Paschi di Siena (MPS) took advantage of its new position among covered bond investment grade borrowers to take a 10 year benchmark to market on Tuesday. Given its €1bn seven year tap in April attracted one of the highest oversubscriptions of any covered bond of that size this year, expectations for Tuesday’s deal were high. But on that basis the deal disappointed, despite it delivering another €1bn for the issuer.

The cover pool backing Goldman Sachs’ fixed income global structured covered obligation (Figsco) programme is too weak to secure a rating uplift to the issuer of the underlying special purpose vehicle — Goldman Sachs Mitsui Marine Derivatives Products (GSMMDP), the joint venture guaranteed by Goldman Sachs and Mitsui Sumitomo Insurance, Fitch said on Monday.

UniCredit Bank Austria (UBA) has tripled the share of non-profit housing loans in its mortgage pool in a year and reduced the share of riskier commercial mortgages, in a move which Moody’s said was credit positive for its Aa1 programme.