Euro

National Bank of Canada has mandated leads for a roadshow starting next week.

Obligations Fonciére issued by Compagnie de Financement Fonciere and CIF Euromortage were downgraded one notch by Fitch this week following the rating agency’s downgrade of France’s long term rating to AA from AA+.

The outlook for covered bond primary markets is likely to be less clear cut in January 2015 than it was a year earlier, as uncertainty over the timing of a sovereign quantitative easing (QE) programme, the trajectory of US rate rises and an ambiguous political backdrop are likely to complicate price discovery. But with a few more basis points on the table, tier one issuers shouldn’t have difficulty attracting investors.

The European Central Bank is legally obliged to carry out its role as a single supervisor and its responsibility to apply resolution measures will take precedence over its position as a covered bond investor, say analysts at Barclays research. As the central bank has the power to make decisions that could be detrimental to covered bond holders, covered bond supervision should be strengthened.

Issuance of benchmark Pfandbriefe is expected to increase slightly next year, but with private placements set to decline more sharply, the overall size of the German covered bond market will shrink, said the German Association of Pfandbriefbanks (VDP).

The pace of covered bond purchases is likely to slacken next year due to natural market forces, but also because the European Central Bank’s focus will turn to sovereign bond purchases, said Commerzbank analysts in their 2015 outlook published on Wednesday. Despite estimating a €15bn annual decline in supply to €100bn, new regulations which require banks to focus on capital rather than funding will not be overly negative the analysts said in a report published on Wednesday.

European covered bonds are expected to benefit from strong and increasing regulatory support and an improving sovereign outlook, said Moody’s in its covered bond outlook for 2015. However the positive credit view takes no account of market value which remains negative.

The European Central Bank increased its purchases of covered bonds in the secondary market last week as primary activity remained subdued, but the increase has only had a marginal impact on spreads.

Mediobanca and UniCredit could see their covered bonds drop to A- after Standard & Poor’s downgraded the Italian government by one notch to BBB-.

Covered bond investors continue to be concerned about the European Central Bank’s third covered bond purchase programme, as the intervention appears to be pushing private money out of the market. Central bank allocations in recent deals have been up to 60%, and at least one cornerstone investor is gradually exiting the market.

Covered bond harmonisation must be ambitious rather than lowest common denominator, or there is little point in the project, according to a presentation at the Association for Financial Markets in Europe / Verband deutscher Pfandbriefbanken covered bond conference in Berlin.

This week the ECB scaled back buying in the primary covered bond market and gave the private sector a chance to set the price.