Euro

After a string of lacklustre covered bonds, the primary market found its mojo on Wednesday as Cassa di Risparmio di Parma e Piacenza (Cariparma) issued a larger and longer Obbligazioni Bancarie Garantite than its closest comparable. Despite a weak secondary market, the issuer was able to attract a book that was driven by private sector demand for its first public deal, because pricing was fair and was defined from the start of the bookbuild.

Cassa di Risparmio di Parma e Piacenza (Cariparma) has mandated leads for its inaugural Obbligazioni Bancarie Garantite, which is set to launch tomorrow following the roadshow which was finalised on Monday.

Standard & Poor's upgraded the Ireland-based but German-owned Depfa Bank PLC to 'A-' from 'BBB' with a stable outlook on Monday. The state-owned bank can soon be considered a Government Related Entity (GRE) and will benefit from increased state support following a transfer of its ownership.

The once beleaguered multi-Cédulas sector may well be a safer asset class to invest in because, over the last year, overcollateralization (OC) ratios have increased, said Fitch.

With a pall of misery hanging over the covered bond market, Cariparma’s debut covered bond, which could be launched next week, could be the final primary issue of the year.

WL Bank launched a covered bond into a weak secondary market on Thursday, pricing a five year close to where its 10 year had been trading. Screen prices give the illusion that spreads are holding steady, but in reality banks are scrambling to cut inventory and sales are being made below screen bids. But with primary activity likely to dry up, redemptions set to rise and ECB buying unlikely to slow down, the balance of flows will turn and spreads will tighten, said bankers.

Credit Suisse has published a consent solicitation in which it proposes changing the maturity of its outstanding covered bonds from a hard bullet to a soft bullet. Though the market does not price for this difference, the issuer is willing to pay investors five cents to agree to the change.

The covered bond market had a watershed moment on Friday when OP Mortgage Bank launched its 10 year. Despite an attractive spread, the deal was unable to get the sort of traction that the issuer may have hoped for. It was no coincidence that as books opened, ECB president, Mario Draghi, raised the prospect of full scale sovereign quantitative easing — something that is likely to make covered bonds look relatively expensive to government bonds.

Covered bond spreads continued to fall in the primary market as Belfius Bank and Landesbank Hessen-Thueringen Girozentrale (Helaba) issued benchmark euro deals at record low funding levels on Thursday. The German issuer provided the Bundesbank with its first opportunity to purchase a benchmark domestic deal.

A newly proposed legal framework for the Spanish Cédulas market could lead to less overcollateralization, which would in turn lead to downgrades of at least one notch, said Fitch on Thursday. But the introduction of a 12 month liquidity facility could lower the mismatch risk between assets and liabilities leading to a one notch rating improvement, the agency added.

Belfius Bank has mandated leads for its second public sector covered bond and its fourth covered bond of the year. The issue is expected to be launched into a softer market, with bankers widely reporting that offers have cheapened, particularly at the long end of the French curve and in the periphery.

Crédit Agricole returned to the covered bond market for the first time this year to issue a €1bn eight year. Demand as fair, but less spectacular than deals seen two weeks ago, as the agency and sovereign sector now offer better value. Leads stressed the quality of real money interest, a large portion of which is likely to have been from the Banque de France.