Currencies

UniCredit reopened the Italian market once again on Thursday, to the surprise of market participants. After almost three months without Italian supply, the national champion followed ING into the 10 year segment, launching a €1bn no grow benchmark. Syndicate officials disagreed over where the deal priced relative to BTPs, with estimates ranging from flat to 10bp over.

UBS and Eurohypo tapped the short end of the curve on Thursday, leaving long dated supply to UniCredit. Swedbank issued a five year dollar benchmark. Meanwhile the pipeline continues to build, with HSBC, Nordea Bank Finland, and Deutsche Pfandbriefbank announcing roadshows ahead of planned transactions.

The focus of attention is on plunging stock markets, a falling Bund yield, worse than expected German growth and a meeting between President Sarkozy and Chancellor Merkel. Well received SSA issuance should bode well for a German or Nordic covered bond reopener but many have their doubts. Nykredit is on the road in Asia, but it’s strictly non-deal related.

EFSF guaranteed covered bonds could be one solution to dwindling access to term funding among Europe’s banks. Even if markets reopen in September, costs are likely to be high across asset classes, particularly senior unsecured, said market participants. Funding constraints may lead banks to shrink their balance sheets, and if unchecked could lead to a grinding credit crunch in the southern eurozone.

Eurohypo released its first half results on Tuesday, reporting big public finance burdens caused by the Greek debt crisis, but a positive forecast on its commercial real estate business.

Asian companies hoping to raise money in the bond market had better be patient — and ready to strike at a moment’s notice, said bankers on Monday. The region’s stock markets plummeted en masse as investors dumped their holdings or took out new short positions following Standard & Poor’s downgrade of the US last week, and bankers think the psychological effect of such prolonged and violent falls will make any new bond activity unlikely.

Just when it looked like the covered bond primary market had closed for the summer, Hungary’s OTP Mortgage Bank announced a three year floating rate covered bond on Wednesday, the second floater in the covered market in as many days. Sole lead BNP Paribas opened books at a guidance level of three month Euribor plus 300bp.

Secondary market trading activity has slowed as bank dealers look at the whipsawing Bund/swap spread and soaring peripheral government yields. There has been some small selling in Italian bonds but covered bonds continue to outperform their respective sovereign debt markets and are becoming increasingly detached.

Four Greek covered bonds on the brink of junk status will remain on rating watch negative, though structural adjustments have strengthened the programmes. Fitch maintained mortgage covered bonds issued by Alpha Bank, Eurobank EFG, National Bank of Greece (NBG) Programme II and Piraeus Bank on rating watch negative on Friday.

Moody’s placed Spanish government bonds (Aa2) and the debt and deposit ratings of five Spanish banks on review for downgrade on Friday, because of funding pressure facing the Spanish government, and challenges to fiscal consolidation. Though the covered bonds of the banks concerned are likely to be unaffected in the short term, the negative rating action is worrying for weaker Spanish issuers.

Peripheral sovereign bonds are once again heading towards their recent widest spread levels but covered bonds, as usual, are lagging the move. Real money buying of peripheral covered bonds has been at levels 60bp through the government in some cases. Volumes are small, however, and bid offer spreads are wide as concerns around volatility continue to weigh in on sentiment.

Europe’s politicians agreed on a second rescue package for Greece on Thursday, providing markets with much needed succour. However, covered bond practitioners said this does not mean the market is suddenly in risk-on mode. Investors and issuers, they said, will want to see extended stability in spreads before putting in large bids or printing new paper.