Euro

Covered bond yields fell on Tuesday as Bunds rallied following a larger than expected fall in the ZEW business sentiment index and lower than expected inflation data. The European Central Bank (ECB) could be poised to commence buying on Wednesday after its scheduled meeting. Since the ECB is likely to be targeting the spread to government bonds, Pfandbriefe are likely to be on the bank’s shopping list, as they look more attractive than peripheral bonds versus their government bonds.

Goldman Sachs has not given up on its Fixed Income Global Structured Covered Obligation (Figsco). Despite bad publicity, the market has moved in Goldman’s favour since the deal was first announced.

The final text of the European Commission’s (EC) Delegated Act on the Liquidity Coverage Ratio (LCR) says that covered bonds that are not rated will be eligible for inclusion into category 2B. The announcement on Friday shows that the European Commission is keen to reduce reliance on credit ratings and should be another boon for the covered bond market.

Canadian Imperial Bank of Commerce has priced the tightest ever Canadian covered bond issued in euros. The price discovery process was also notable for skipping out guidance and going straight from initial price thoughts (IPT) to final spread.

Czech Raiffeisenbank has mandated leads for the first publicly distributed euro-denominated benchmark Czech covered bond, which is expected to be launched following a roadshow. The transaction, which is eligible for repo with the European Central Bank and documented under English law, could be followed by a string of other Czech covered bond deals denominated in euros.

Sparkasse KölnBonn opened books on Tuesday on an Aaa-rated €500m no-grow 10 year mortgage backed Pfandbrief, its first deal since April 2013 and the sixth 10 year print to come out of Germany in 2014. Bankers on the deal said they could have pushed the rare name through mid-swaps but opted not to, as the issuer wanted to leave room for secondary market performance.

Canadian Imperial Bank of Commerce has mandated leads for its first euro benchmark covered bond of the year. With comparable deals trading through mid-swaps, the transaction has potential to price inside Euribor, even though its bonds are not eligible for the European central bank’s purchase programme.

The wave of spread compression triggered by Thursday’s CBPP3 announcement is driving covered bond funding costs towards the TLTRO level across the periphery, according to analysis by Crédit Agricole’s covered bond research team in a note published on Friday.

Belfius Bank was set to price its first public sector-backed Pandbrieven and the first under the Belgian covered bond law on Monday. Though larger than usual, the deal was comfortably oversubscribed and was expected to price with no new issue premium.

Sub-investment grade ABS and covered bonds will be on the European Central Bank’s shopping list when it begins the private sector purchase programme it hopes will revive real economy lending this month. But stakeholders in both markets remain unconvinced of the size the ECB can achieve and many now see the move as a mere stepping stone to full-blown quantitative easing.

Lars Overby, head of credit, market and operational risk policy unit at the European Banking Authority, in discussion with Bill Thornhill, editor of The Cover, about the challenges facing harmonisation of the asset class.

The European Central Bank’s purchases of ABS and covered bonds may start next month and last four years.