Euro

Piraeus Bank has cancelled its covered bonds which, along with all other Greek covered bonds, are no longer eligible for funding under the European Central Bank’s Emergency Liquidity Assistance facility. The move comes after ECB raised ELA collateral haircuts to a rumoured 45% with a warning that it may cut liquidity off completely two weeks from now.

The proportion of residential mortgages in Spanish Multi-Cédulas (MC) has risen, leading to an improvement in their credit quality, Fitch said on Tuesday.

Markets could be facing a protracted period of uncertainty, as a Greek exit from the euro seems more likely after the “No” vote in Sunday’s Greek referendum. The Eurogroup is expected to hold a summit on Tuesday when it will become clear whether or not there is a political will to do a new deal with Greece. Risk aversion should ultimately favour covered bonds, but borrowers will need to price deals cautiously.

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.