Currencies

Wednesday’s sterling deal from Bayerische Landesbank came as welcome relief to supply starved investors but the paucity of supply has also been particularly marked in the euro market, where issuance volumes are half of last year’s shrunken levels. The technical mismatch is helping to spur demand in the secondary market where Spanish deals are once again in vogue.

The former Dexia Municipal Agency, now Caisse Française de Financement Local (Caffil), is considering whether to appeal against a French court judgement over three structured loans it made to a local authority. With as many as €10bn of similar loans in its €70bn collateral pool, the market is watching developments closely.

Changes to Spanish mortgage law will not lead to lower overcollateralisation, as the rules will only apply to new loans, Fitch said on Tuesday, contradicting an earlier statement from Moody’s.

Spanish government bonds performed well on Friday but long term concerns about the outlook for Spain are spooking traders who are increasingly willing to consider leaving illiquid Cédulas shorts uncovered. In core markets, traders are focused on the Bund swap spread and suggested that a potential sell off could be accompanied by a spread tightening.

Berlin Hypothekenbank (BHH) struggled to sell a €1bn mortgage Pfandbrief at its target spread after opening books at the wide end of initial price thoughts, at 1bp through mid-swaps, on Monday. The tight level surprised bankers, due to the recent decreasing bid for core names offering slim yields and even slimmer premiums.

Berlin Hypothekenbank has mandated banks for a jumbo five year Pfandbrief and at least one other German name is circling the market. However, bankers told The Cover that issuers will wait for the market to shake off its fatigue before further deals emerge.

Cédulas have dominated covered bond issuance so far in 2013, aided by a remarkable rally that has seen nine deals printed this week. However, oversubscription rates have dwindled this week, and both core and periphery issuers may need to increase what they offer investors to get their attention in a crowded market.

This week’s primary deals have posted a mixed performance, but with the market backdrop still supportive, there is a lot of confidence that spreads will stabilise for the less well placed deals that were seen this week.

KBC Bank and Belfius Bank achieved incredible results this week in terms of their spread levels, which now rival not just the best French covered bond names, but the French and Belgian governments as well

Excellent funding conditions drew more covered bond issuers from core Europe to the market this week, with impressive deals done at aggressive spread levels. But bankers cautioned that new issue premiums may have to rise with juicy spreads from peripheral Europe drawing investors’ gaze.

KBC Bank was on Thursday morning set to price its second-ever covered bond, following Belfius Bank out to the 10 year maturity but with a larger €750m deal that priced just inside its Belgian rival.

The primary market picked up momentum on Thursday with three benchmark deals and one benchmark sized tap being syndicated. ANZ, Bankinter, KBC and Compagnie de Financement Foncier (CFF) unearthed a over €3bn of demand.