Currencies

Triple-A covered bonds are underperforming triple-B, while Spanish multi-Cédulas are outperforming single-name, Markit iBoxx indices show. But the relative performance is due to the better liquidity of stronger credits, traders warned, and market prices would not reflect index spreads.

Selling continued in the secondary market on Tuesday, covered bond dealers said, with French, Norwegian and UK bonds hardest hit. German, Swedish and Finnish markets have held in better.

Finland’s Aktia Bank mandated leads on Monday for its first covered bond, that Moody’s has provisionally rated Aaa. Despite high quality collateral, the covered bond rating is vulnerable to a downgrade of the borrower.

Secondary market selling of covered bonds slowed a little on Friday ahead of the US payrolls report. But bankers say the US data won’t make much of a difference as further selling is likely. In the primary market there is concern that if a deal is incorrectly priced, it will add to problems and potentially close the funding window for other issuers

Covered bonds backed by loans to small and medium-sized enterprises (SMEs) are gaining traction as a funding tool for European banks and could soon become a feature in Italy, Spain and France, according to Moody’s.

Cover pool encumbrance was steady last year versus the previous year, Fitch said on Thursday. The most stable levels were among the most encumbered institutions, where covered bonds have made up a large share of their financing for a long time.

UniCredit priced the tightest covered bond since the start of the crisis on Wednesday, achieving the lowest coupon for an Italian covered bond. Waleed El Amir, the bank’s head of long term funding, group finance, spoke to The Cover about the deal.

Raiffeisen-Landesbank Steiermark built a solidly oversubscribed book for only the second 15-year covered bond of the year, enabling leads to price inside guidance in what they said was still an issuers’ market, despite the more volatile macroeconomic backdrop.

Austria’s Raiffeisen-Landesbank Steiermark has mandated leads for its debut mortgage-backed covered bond, a no grow €500m issue that could be launched as early as Wednesday. However, it has yet to decide on maturity, perhaps waiting to see how well other deals are received before making a final call.

Sparebank 1 Boligkreditt opened books for a seven-year €1 billion covered bond backed by prime Norwegian residential mortgages on Tuesday. The deal attracted a granular, but not hugely oversubscribed book, after pricing with a small new issue premium in a busy market.

The new issue covered bond market gathered momentum on Tuesday with two fresh deals, including one from UniCredit which should substantially cut its cost of funding.

Despite the start of a new quarter, investors are not pushing money into covered bonds, secondary market dealers told The Cover on Monday. Bunds have weakened in line with US Treasuries but the rise in yields has not tempted insurance companies to buy bonds. They are waiting for key US employment data due on Friday, which could trigger a further yield hike, before making any move, said bankers.