Currencies

After good buying in the long end of the French curve at the end of last week, spurred by the back-up in yields, secondary market activity has slowed markedly and the focus is once again back on the primary where there are several deals are in play. The Italian market is taking centre stage amid concerns that one issuer might crowd out the other.

Banco Popular Español (BPE) launched the fourth Spanish covered bond of 2011 on Wednesday, amidst hopes that the record premiums which recent Spanish issuers have been forced to offer, may be set to fall.

Secondary market activity has picked up across the board with bankers reporting decent interest in France the UK long end, Germany and, most importantly, Spain.

Looking ahead, market participants expect more deals to emerge. This morning Banca Monte dei Paschi di Siena announced that Credit Suisse, JP Morgan, Mediobanca, MPS Capital Services, Natixis and Nomura will lead manage a euro benchmark in the near future. Elsewhere in Italy, Credito Emiliano is expected having been on a non-deal roadshow last year.

Sentiment in Spain has improved dramatically in the last week, helped by a buoyant SSA sector along with an announcement from the Spanish finance minister of a set of measures which include ensuring funding for Spanish banks. Second and even third tier Spanish institutions could conceivably issue, though it’s likely more time will be needed before a multi-cédulas deal is possible.

The mood is buoyant and several deals look likely to be announced before long. LTSB and Nationwide have been added to the existing rumours of La Caixa and Sabadell, but with sentiment improving issuers are thinking the market is on a roll so maybe they are better placed to wait a few days more, in which case funding costs could be shaved by even more.

Société Générale yesterday (Wednesday) priced its Eu1bn 4.25% 2023, a deal conspicuous for its level of oversubscription, the highest of any covered bond deal so far this year. Buoyant sentiment and rarity clearly played a role –along with the pervasive new issue premium which, not surprisingly given the scale of demand, was deemed by some to be too large.

CIF Euromortgage successfully priced (on Tuesday) a €1bn five year obligation fonciere achieving a high degree of oversubscription. Though it could have issued a bigger transaction, the bank opted for a quality placement that, for a French issuer, saw high penetration into the core North European buy & hold investor base.

Despite decent selling of 10-year paper in the secondary market, the overall tone remains very positive. In the primary market this was most conspicuous in the books for SG’s Eu1bn 12-year, which has attracted the largest oversubscription so far this year. Banco Popular's deal has also gone smoothly.

The new issue market is gingerly picking up steam with CIF Euromortgage imminent and Kommunalkredit on the road. Sentiment is positive and has been boosted by a likely strong result for the EFSF deal. That said it’s clear that issuers must continue to offer attractive new issue premiums especially in France, the most prolific of regions so far this year.

Delta Lloyd’s Arena 2011-1, the first European ABS deal of the year, priced at the tight end of guidance on Friday, signalling that the market is ready for more Dutch prime.

A clutch of issuers from outside Europe leapt into the covered bond market across a range of currencies this past week in what was a spectacular display of a sector that is becoming increasingly global.