Currencies

The Austrian government's decision on winding up Hypo Alpe Adria is a sign of waning state support said Fitch on Friday. The announcement comes as Standard & Poor’s put the ratings of seven Austrian banks on credit watch negative, leading Commerzbank research to suggest selective Austrian covered bonds could soften.

Royal Bank of Canada opened books on Thursday for its keenly anticipated inaugural covered bond of 2014. The deal builds its euro curve and establishes RBC as the benchmark Canadian issuer in euros. Though wider than its last five year, the 0.75% coupon was 0.5% below its last funding in this duration and shows the impact of the ECB's recent action.

Deutsche Kreditbank (DKB) opened books on Wednesday on an Aa1-rated €500m 10 year mortgage-backed Pfandbrief, its second deal of the year and the third 10 year print to come out of Germany in 2014. A lead banker on the deal described the reception as tepid — a further indication of investor frustration with slender coupons offered by second tier Pfandbrief issuers, particularly on longer tenor bonds.

The European Banking Authority (EBA) believes that the preferential risk weighting for covered bonds is warranted in principle. However as covered bonds issuers can fail, covered bond frameworks should converge to a common standard in certain important areas, and this may need to be implemented within a two year time frame, said the regulator on Tuesday.

Mediobanca was the sole issuer to put its head above the transaction parapet on Tuesday morning following Mario Draghi’s speech on Thursday. Offering a €750m five-year trade to a supply-hungry market, the deal priced at least 3bp through fair value, according to a lead banker on the deal — a clear signal that the periphery tightening story is not over yet.

Deutsche Kreditbank has mandated leads for its second deal of the year and the third 10 year issued from Germany this year. Meanwhile, there is speculation that several Canadian issuers could return to the euro market.

While markets on the continent were closed for business on Monday due to public holidays, syndicate bankers in London were planning a busy week ahead. With a broadly positive reaction to European Central Bank president Mario Draghi’s Thursday speech seen across credit markets into the end of last week, conditions remain strong for primary issuance. On Friday the iTraxx Senior index closed 8bp tighter to a new post-2008 low of 60bp. The pipeline could include deals from Westpac New Zealand and Caisse Centrale Desjardins du Quebec.

Veneto Banca has issued its second RMBS in as many months, while Banca Sella was set to price its first RMBS deal since 2005 on Friday. The short dated single A rated deals, that offered a compelling triple digit spread, will give covered bonds a run for their money for investors that understand the risk.

Two of the strongest RMBS platforms in the European securitization market hit the market this week, and showed investors are still eager to grab the highest quality paper.

Moody’s released its quarterly treasure trove of covered bond rating trend analysis in ‘Global Covered Bonds Monitoring Overview: Q4 2013’ this week. The agency identified a widespread increase in timely payment indicators (TPIs) for covered bond programmes in countries with a sovereign rating of A1 and below as the key trend.

Covered bond secondary markets opened on a much firmer footing on Friday, with dealers and clients singling out higher yielding weaker credits, particularly in the periphery, where offers are hard to find. The move came after Thursday’s stimulus package from the European Central Bank, and after Standard and Poor’s upgraded several Spanish banks.

With rate cuts and targeted asset purchases already priced into markets, bankers fear the European Central Bank will under-deliver on promises of market stimulus at Thursday’s meeting and trigger a fixed income sell-off. However, this will present a buying opportunity for covered bond investors, bankers told The Cover. Commonwealth Bank of Australia has issued a five year dollar benchmark.