Currencies

Sweden's finance minister, Anders Borg may want the country's banks to rely less upon the covered bond market and more upon growing their own deposit bases, but if Swedish banks were to abandon a market that has served them so well for so long, it could do more harm than good.

Bids for core market covered bonds are dwindling, bankers said on Wednesday. However, higher yielding peripheral deals, and all bonds at the long end, remain well supported, though spreads are unchanged.

The transfer of mortgages to UBI’s cover pool increases collateral risk but is mitigated by high overcollateralization, which has increased by even more, Moody’s said on Monday.

There is an even chance that two deals could surface from Europe’s core and periphery next week, bankers said on Friday, but potential issuers have been perturbed by the performance of this week’s two deals, both of which have softened slightly. However, in both cases there were specific factors at work that are unlikely to impinge on prospective deals where there is high confidence of a strong reception.

After a seven year slump and a 50% price fall, the Irish housing market is finally stabilising, although a recovery is still some way off, Moody’s said on Thursday.

Cajas Rurales Unidas plans to sell a five year Cédulas Hipotecarias on Thursday, six months after making its covered bond debut. However, this is unlikely to herald a wave of Spanish covered bonds, said bankers. The issuer’s first deal had widened considerably following a Moody’s rating downgrade, but now trades well inside the reoffer.

Sparebank 1 Boligkreditt struggled to get investor traction on Tuesday morning for its €1bn long six year benchmark. The weak demand was in sharp contrast to last week’s €1.5bn five year bond from DNB Boligkreditt, with bankers away from the deal suggesting the long six year maturity may have been slightly too long for asset managers looking to shorten duration.

The most interesting take away from this week’s Bank of Ireland covered bond was the improved depth and quality of demand, according to Darach O’Leary, head of wholesale funding at Bank of Ireland.

All bar one of France’s public sector covered bond programmes face downgrades after Standard & Poor’s cut the Republic of France by one notch from AA+ to AA, Crédit Agricole research said on Friday. However, French mortgage backed covered bonds should avoid any downgrades. In any case dealers were certain the impact would be negligible.

In the covered bond primary market Münchener Hypothekenbank priced a €125m tap of its 1.125% October 2020 at deeply sub Euribor levels on Thursday, while in the secondary market the strong bid continued across the board, though some dealers had expected rates to sell off, before the European Central Bank announced its rate cut.

Spanish covered bonds issued by tier two banks could fare better than their Italian equivalents, even though Italian spreads have been less volatile than Spanish ones this year, RBS said on Thursday.

Repossessed Spanish properties are being sold at levels on average 71.6% lower than original valuations, Fitch said on Thursday. New mortgages are being originated with LTVs of 100%, affordability has not improved since 2008 and housing stock remains exceptionally high, its report said.