Currencies

Italy’s covered bond market will tread water in 2013 in terms of outstanding bonds, say analysts. Issuers remain at the mercy of their sovereign story and a tricky general election is due in the first quarter, but supply could surge if the outlook improves.

Denizbank is the latest Turkish issuer to turn to covered bonds. It has applied for permission to raise up to €300m in SME-backed bonds, which it intends to sell early next year.

Australia has been the covered bond growth engine this year, adding $44bn to its market. With no redemptions due in 2013, it is set to grow faster than any other covered bond market again next year, though not at quite the same pace, bank analysts predict.

Time is running out for borrowers yet to make programme changes in advance of Standard & Poor’s new counterparty criteria, which comes into force in early January. The rating agency has placed another six programmes on review for downgrade, and warned there could be others.

Gross euro denominated benchmark issuance should grow slightly in 2013, but with redemptions set to increase sharply, net supply will be negative, said analysts as they looked ahead to the New Year. That could mean that spreads will continue to tighten.

This week Commerzbank unveiled a highly rated SME structured covered bond. It offers tremendous hope for the revival of the European economy, as it suggests banks have a way of financing this crucial sector with capital market funding.

The development of the covered bond market took a leap forward this week when Moody’s and Fitch assigned a provisional double A rating to Commerzbank’s €5bn SME-backed structured covered bond programme.

BRFkredit has launched a €4bn Euro-medium term note programme with a view to tempting German investors next year with a first quarter benchmark. Until now the Danish mortgage bank had relied on domestic standalone documentation.

Société Générale was set to price a five year covered bond inside its own curve on Thursday after gathering in €3bn of orders. The deal clearly benefitted from a lack of supply in that maturity this year and comparison with more liquid deals from Belgium this month.

National Australia Bank has returned to the euro market with a covered bond that is twice as long as its previous euro financing but at less than half the cost. Despite that, initial guidance was cheap relative to its peers. Yet the swell of demand it has attracted should ensure the final print is tighter.

Redemptions are set to rise by 58% from €99bn in 2012 to around €160bn in 2013 but January may still not be very busy, bankers told The Cover. However, with core issuers able to fund more cheaply in the market than via the ECB, and peripheral issuers under pressure to do deals, supply expectations may be too pessimistic.

In hindsight, KBC’s first covered bond could have been priced inside its final spread of 30bp over mid-swaps. But the deal was still a great outcome for KBC, taking advantage of a buoyant market — that has probably not seen its last deal this year.