Currencies

As the technical backdrop looks stronger now than at any time this year, issuers should step up and execute funding plans before the Greece crisis gets any worse.

Santander has issued European covered bonds from Spain, Portugal and UK but could soon be about to issue Obligations Foncières from a new French programme. However, the sub benchmark sized deals are likely to be placed with the ECB said bankers.

Italian Banca Monte dei Paschi di Siena S.p.A (Monte) has changed the structure of all its outstanding covered bonds from hard bullet to conditional pass through (CPT). The success of the consent solicitation may encourage others to follow.

Covered bond spreads were tentatively tighter on Friday in the expectation that some sort of deal would be agreed with Greece over the weekend. Parts of the market have repriced and there is scope for selective issuance, but a government bond rally would help.

Polish covered bonds are one step closer and with 90% of members of parliament in support of the new draft, bankers say it is only a matter of time before the proposals become law.

Covered bonds not eligible for the European Central Bank’s covered bond purchase programme (CBPP3) widened further on Thursday, while the rest of the market was largely unchanged on low volumes. Traders are axed to offer and reluctant to show bids.

Moody’s positive rating action on German and Italian covered bonds will help improve structural demand for selective programmes. However, with Fitch still rating many programmes at a lower level the full benefit will be muted.

Sentiment in core covered bonds is holding in with core European five year paper trading steadily. Peripheral bonds are less well placed and deals not eligible for the European Central Bank’s covered bond purchase programme (CBPP3) are offered in good size.

Spanish covered bond spreads were stable on Monday following the multi-notch rating upgrades Moody’s announced at the end of last week, as developments over Greece’s debt negotiations took centre stage. Though a few selective high beta names attracted real money interest, the overall market was heavy even as some government bonds were 20bp tighter or more.

Timo Ruotsalainen, head of treasury at Aktia Bank in Finland, speaks to The Cover about the European Central Bank’s covered bond purchase programme, LCR funding and shrinking investor pools.

A 10bp new issue premium was not enough for HSH Nordbank to attract a fully subscribed book for its €500m seven year Pfandbrief issued on Monday. Though it was cheap to the curve, the deal was much more expensive than other higher rated, shorter dated agency debt offered at the same time.

The transformation of China's bond markets is set to quicken its pace, judging by the first RMB internationalisation report from the People's Bank of China (PBoC), which was published on June 11. There will be a focus on the Panda bond market, while central banks and monetary authorities may have their access to the onshore interbank market eased.