Currencies

Bankers have yet to be convinced that the merger between Italy’s Banco Popolare Società Cooperativa (BPSC) and Banca Popolare di Milano (BPIM) will be especially positive, though Moody’s says it is good news. The borrowers recently issued covered bonds have tightened in line with the rest of Italy, but they have not outperformed and still trade wider than reoffer.

Euro denominated supply has been strong this year with as much as €66bn issued until last week according to Dealogic. However as the market heads into the second quarter, it is almost certain that volumes will fall — potentially quite sharply.

The vibrancy of the covered bond market was in no doubt as the first quarter of 2016 started to draw to a close, as volumes reached their highest level in five years. Many new names were seen, a few old names returned and further expansion seems likely. But even though the covered bond market enters the second quarter on a high, several factors may undermine sentiment.

Following approval of its demerger plan, Nordea has managed to get the consent of bondholders to transfer the assets and liabilities affecting 31 of its Finnish covered bonds to a new entity with a new guarantee. However, it does not yet have investors’ consent on six remaining deals.

EAA Covered Bond Bank Plc (EAACBB), an Irish covered bond issuer and subsidiary of Erste Abwicklungsanstalt, which was formally a part of WestLB Ireland, has been given the authority to proceed with its sale.

Banco Popolare Sondrio returned to the covered bond market for its second ever deal on Wednesday. The substantially oversubscribed transaction was priced close to fair value reflecting a concern that peripheral supply could dry up.

Latin America development bank Corporación Andina de Fomento (CAF) has made its fourth outing in the Australian dollar market.

Regulations that have heavily favoured covered bonds over the European securitization market, and that have little foundation in prudential risk, are storing problems for the future. A report published on Tuesday by the Dutch central bank illustrating the regulatory desecration of the securitization market shows that nothing has changed.

In the past week, two Chinese officials have publically acknowledged the possibility of a tax on foreign exchange (FX) transaction to curb capital outflows. Although details on the initiative still scant, views are diverging about whether it is a good measure against foreign speculators or will end up back firing.

The Canton of Geneva has printed a 20 year bond with what bankers on and off the deal say is the lowest ever coupon at that tenor for a Swiss public sector issuer.

Covered bonds have become a larger source of funding for Dutch banks than securitisations, according the Dutch central bank.

Crédit Agricole reported on Tuesday that it had bought almost as many covered bonds as it sold in last week’s dual tranche issue, and has therefore kept its funding structure stable.