Currencies

European bond markets reacted poorly to the no-committal anodyne ECOFIN meeting in Poland and the Berlin election result over the week end with the Bund yield predictably gapping lower on Monday. Credit markets followed suit with the iTraxx Senior Financials ending +24bp at 286bp and the SovX W Europe finishing +13bp at 338bp. But the moves lacked conviction and the jury is out as to whether the primary market will remain closed.

French gas producer Air Liquide closed an Rmb850m ($133m) seven year bond late last week, getting reverse enquiry demand from investors after it sold a larger five year issue in the public market.

Spreads on French bank paper have been unaffected by Moody’s downgrades, which had been widely anticipated.

Nordic covered bond issuers Sparebank 1 Boligrekddit, Swedbank and Nordea Bank Finland all priced benchmark deals in the past week with each getting a quite different reception. Meanwhile Austria Erste bank issued a small but successful sub €1bn deal.

Abbey National came to market on Thursday morning with a five year, €1bn benchmark, making a hat-trick of euro benchmark issues from the UK this week. But some syndicates were concerned that Abbey’s association with peripheral Europe through its Spanish parent would make it a tougher sell than the UK banks that preceded it.

BPCE took French covered bond supply in euros to over €44bn for the year on Thursday, launching its second Obligations à l’Habitat. The 10 year transaction followed Crédit Agricole’s five year which was increased due to the high number of quality orders.

With 14 benchmarks in just over one week and several issuers on roadshow, analysts are debating when covered bond primary market momentum will slow. Recent issuance has been well received and generous new issue premiums have ensured spreads have held around re-offer. But with supply coming at all points on the curve, and as many as three trades from some jurisdictions, prospective issuers may find placement increasingly difficult.

RBS on Wednesday secured the largest order book since the European covered bond market re-opened last week, demonstrating the strength of the bid for UK covered bond paper. It was the second UK bank in as many days to print a €2bn deal, and it is the first time the borrower has secured funding with a spread over mid-swaps of less than 100bp.

The surge in covered bond issuance continued on Wednesday, with a trio of benchmarks taking issuance to more than €14bn since the market reopened in the middle of last week. Some 12 trades from 10 jurisdictions have been launched since then.

UBS was one of three issuers that came to market with a euro benchmark on Thursday, taking advantage of the first issuance window in roughly two months. The Swiss borrower secured a twice covered book for its three and a half year paper, including a significant proportion of new investors.

Despite a meeting of the world’s central bankers at Jackson Hole Nordea Bank Finland kept the primary market alive on Friday, launching a successful €1.5bn five year deal. Syndicate officials welcomed three consecutive days of primary supply, though market conditions have deteriorated since a trio of well received benchmark trades on Thursday. Secondary liquidity still leaves much to be desired, they said, and has not been helped by the attractive premiums offered by the latest issues.

UniCredit brought the Italian covered bond market back to life in dramatic fashion on Thursday, offering hopes of market access to other issuers from the jurisdiction. In addition to boasting a record high spread for an Italian issuer, UniCredit reports that the €1bn 10 year trade also carried the tightest ever spread to BTPs, pricing flat to the sovereign curve.