Currencies

Interest only mortgage loans could destabilise an already stressed Danish housing market, Standard & Poor’s said on Monday.

Japan’s banks are overflowing with deposit funding. Not only do they have little need to venture into the international capital market themselves but they can also easily fund the ambitions of the country’s corporates. That combination has kept issuance volumes depressed, but a number of factors are now converging to make an uptick in activity much more likely — in all asset classes.

A decisive election victory for prime minister Shinzo Abe has paved the way for a ¥10tr stimulus package for Japan’s depressed economy. The reaction has been startling, with growth estimates being rapidly revised upward. But there are challenges that even Abenomics will struggle to tackle.

Crédit Agricole Home Loan SFH was the only borrower to visit the euro covered bond market this week. The issuer sold a €250m tap of a 12 year bond, although syndicate bankers disagreed over the premium the increase offered relative to OATs and the original deal.

Italian covered bond spreads held firm following a round of Fitch downgrades, which came after the rating agency tightened the link between issuer and covered bond ratings in the country.

High redemptions, combined with deleveraging and a drive towards deposit funding has put net first quarter covered bond supply in 2013 on track to hit record lows, said Barclays analysts on Thursday.

Overcollateralisation should not be the main factor when rating agencies assess covered bonds, according to Commerzbank.

Core and peripheral borrowers are waiting for a better market before bringing benchmark covered bonds. Safe-haven names are traditionally first to take advantage of returning stability. But southern European borrowers, which offer higher yields, juicers spreads and are less flexible over pricing, will find execution easier, said bankers.

Trading in Spanish and Italian covered bonds was relatively stable against asset swaps on Monday, while they tightened versus their domestic sovereign bonds, following the news that Cyprus faces a bail-out from the European Union.

Cédulas Hipotecarias could be hit by a European Union ruling on Spanish mortgage enforcement, according to ratings agency DBRS. The ruling increases the chance of borrowers contesting mortgage enforcement proceedings and this could increase the already lengthy foreclosure period, it said.

Vorarlberger Landes- und Hypothekenbank (Vorarlberger Hypobank) has picked banks to manage its first euro benchmark covered bond, which it plans to launch in mid-April, a funding official at the issuer told The Cover.

Bank of Ireland priced a hugely successful €500m five year transaction on Friday, bringing its longest benchmark covered bond in over three years and radically repricing its curve relative to the Irish sovereign.