Euro

UniCredit Bank Austria issued its second €500m benchmark and the group’s fourth covered bond of the year on Monday. The long five year transaction took advantage of excess demand that was identified in core covered bond deals that priced the previous week, but offered a juicier pick up.

Late on Friday the Bank of Italy published a consultation paper which aims to bring the Italian covered bond framework into line with the fourth iteration of the Capital Requirements Directive (CRD IV), and which could potentially broaden the number of Italian covered bond issuers.

The closer the EU’s bank resolution rules come, the better for the covered bond market, as it is excluded from any possible bail-in plans. But despite the assurances that covered bond investors will escape a bail-in, nobody knows exactly how. Uncertainty remains over covered bonds and liquidity too, with increasingly strident briefing and counter-briefing on whether to count covered bonds in the top class of regulatory liquidity.

Moody’s announced a positive rating action on CaixaBank on Friday, reflecting declining asset-quality pressures, and an improvement in its earnings. The news comes as its most recent deal has performed well, and amid growing expectations that the worst is behind for the Spanish economy. With the interest rate outlook likely to remain constructive and Cédulas likely to stay technically squeezed, the sector’s performance outlook has not looked this good in years.

With deleveraging nowhere near finished and loan growth in most European banking sectors sluggish, covered bond bankers are struggling to see an end to dwindling supply and tightening spreads. The Cover goes in search of anything that could buck the trend.

Hypovereinsbank followed Bayerische Landesbank (BayernLB) on Wednesday with a similarly sized deal of the same tenor. But with a marginally lower rating, and hence a wider spread, it was able to attract an incrementally larger book.

Banco Popular Español (BPE) returned to the covered bond market on Tuesday to issue only the third Cédulas of 2014, and the issuer’s largest covered bond in three years. Though by no means the most attractive spread seen this year, the triple digit pick-up enticed a broad audience of real money investors.

NIBC Bank returned to the covered bond market on Tuesday to launch its second conditional pass-through covered bond (CPTCB). The unreconciled book suggested that the issuer attracted greater scale of demand from a wider group of buyers compared to its first deal. The growing acceptance of this innovative product at a much tighter spread bodes well for future use of this structure.

Bayerische Landesbank returned to the covered bond market on Tuesday with a 10 year €500m public sector Pfandbrief, the longest dated issue from Germany this year and highest yielding for its Triple A rating. Despite the borrower’s problems with its Hungarian subsidiary, legal troubles in Austria and the repayment of state aid, the transaction enjoyed a stellar response. It attracted one of the highest oversubscription levels for a German deal, which was testimony to the strength of the Pfandbrief brand and the quality of the issuer’s cover pool.

Berlin Hypothekenbank AG mandated joint leads on Monday for a euro Pfandbrief and a roadshow to explain its forthcoming ownership structure, in which it will be directly owned by the savings banks and become an affiliate of Landesbank Berlin rather than its subsidiary.

The bastion of the covered bond market is imposing greater transparency requirements on issuers, but the greater immediate challenge for banks is smooth deal execution in a stiflingly tight spread environment.

A revaluation of Spanish properties that serve as Cédulas collateral would boost transparency, said Fitch on Thursday. More transparency would improve investors’ ability to analyse cover pools and be positive for the market.