Euro

A record number of covered bonds are on positive outlook said Fitch in its 2016 covered bond outlook. With sovereign ratings now more stable, covered bond ratings should also become more stable.

France is expected to issue the second highest volume of covered bonds next year after Germany, but with redemptions exceeding supply, the overall size of the market will contract again in 2016. House prices are expected to stabilise next year after falling since 2011, but new loan origination will remain subdued, according to a range of predictions made by covered bond analysts.

The credit outlook for covered bonds has not looked this good since 2007, said Moody’s in its covered bond 2016 outlook.The majority of banks are on a stable outlook and regulations have led to an improvement in the resilience of covered bond ratings.

Germany is expected to lead the way in covered bond supply in 2016, with research analysts estimates’ ranging between €23bn and €30bn. Growth in mortgage lending, high redemptions and a weak private placement market are the main drivers of growth. And, in the event the European Central Bank scales back covered bond purchases, Pfandbrief spreads should be the most stable.

The Bank for International Settlements (BIS) published its second set of proposals for gauging risk and capital charges under the Standardised Approach on Thursday. It has recommended dropping the debt service coverage (DSC) ratio for mortgages, in favour of relying on the Loan to Value (LTV) ratio, a decision that is expected to hit Dutch banks in particular.

Leads Citi and Bank of America Merrill Lynch have priced the Trinity Square 2015-1 UK non-conforming RMBS deal for Kensington Mortgage Company, landing £1.5bn after the offering was initially sized at £1bn.

Nearly €150bn of euro benchmark supply is forecast next year, based on the average of predictions from analysts at seven firms. But breaking it down by region shows the size of the variation, suggesting the number could be as much as €25bn either side.

Italian issuer Mediobanca launched a €250m tap of its existing 2025 covered bond on Thursday, with the deal offering a small premium to its secondary curve. The increase follows news that the Italian bank acquired €2.9bn mortgages from Barclays suggesting it will become a more frequent issuer.

Intesa attracted a well oversubscribed book for its €1.25bn 10 year covered bond issued on Wednesday. The transaction did not initially seem to be an obvious trade to do, but the 1.5% yield along with its status as a national champion evidently gave a broad range of investors exactly the right incentives to take part.

The covered bond market experienced a surge in supply this week, confounding expectations, and illustrating how important it is for issuers to seize unusual funding opportunities.

UniCredit’s German subsidiary HypoVereinsbank (HVB) priced a well oversubscribed four year Hypothekenpfandbrief on Tuesday. Following a strong reception for CIBC’s three year on Monday, it’s likely other issuers will be looking to take advantage of the surprisingly strong funding window that has followed last week’s European Central Bank meeting.

UBS has announced a tender offer for a number of deals including one dollar denominated covered bond. The announcement comes in response to an earlier pledge to build up its Total Loss Absorbing Capacity (TLAC), which should be credit positive for its covered bonds, even though the programme is being wound down.