Euro

If Wednesday’s leaks prove true, and the Eurosystem buys €50bn of sovereign bonds per month from March 2015 to December 2016, the total €1.1tr package is larger than expected. Government bonds should therefore outperform and this will restore relative value by making covered bonds look comparatively cheap, said analysts.

Canadian Imperial Bank of Commerce opened books for the third Canadian benchmark issued in euros this year. The transaction priced tighter than its peers with no new issue premium, though it was still comfortably oversubscribed. The strong result suggests potential for spread narrowing between eurozone and non-eurozone covered bonds.

The European Commission wants credit ratings left out of financial regulation — a great move, if it can find something good to replace them. But it’s making the right decision for the wrong reason. Upset at the presence of sovereign rating caps the EC has thrown a hissy fit in its final version of the Liquidity Coverage Ratio, and suggests that jurisdiction should not be a part of the credit quality of covered bonds — a view that will come as a big surprise to anyone investing in them.

Portugal’s Caixa Geral de Depósitos (CGD) issued a €1bn seven year covered bond, the longest seen from any Portuguese issuer in four years. And at 1% it was also the lowest coupon ever paid by a Portuguese covered bond issuer. The comfortably oversubscribed deal offered a new issue premium of 3bp to 4bp. However, rival bankers said the spread looked unattractive relative to government bonds which are should benefit from prospective central bank buying.

Covered bond issuers from outside the Eurozone launched deals this week denominated in sterling and Australian dollars. But a bigger proportion were from the Eurozone where borrowers launched deals in the single currency in maturities that ranged from four to 20 years. The transaction were priced generously and enjoyed a solid reception, with central banks taking a back seat.

The covered bond primary market maintained robust momentum on Thursday as another four issuers priced deals. The seven year tenor remains the firm favourite with two new trades on Thursday taking the total to eight this year.

Bank of Montreal (BMO) and Caisse Française de Financement Local (Caffil) respectively issued one of the shortest and longest covered bonds of 2015. BMO’s five year appealed to a wide audience enabling the borrower to issue a large €1.5bn deal. Though Caffil’s €500m 20 year appealed to a smaller audience, the very high quality investor base it appeals to bodes well for the deal’s long term performance.

Sekerbank is holding investor meetings for a covered bond which will be the bank’s first ever publicly syndicated deal targeted at investors in the private sector mainly in Europe. The deal takes advantage of the amended law which allows for greater use of derivatives in the cover pool.

Cajas Rurales Unidas is set to become the second Spanish issuer to launch a deal this week, having mandated leads for its third euro benchmark. The transaction is likely to offer the most attractive spread seen in covered bonds this year, and could reprice the issuer’s curve.

The European covered bond market kept up its momentum on Tuesday as four euro-denominated deals hit the screens and books were opened on another denominated in Australian dollars. The euro deals all offered a new issue concession of around 5bp and were comfortably oversubscribed.

The European covered bond market got off to an exceptionally strong start on Monday as LBBW, Compagnie de Financement Foncier (CFF) and BBVA launched euro benchmarks across a range of maturities, without a hiccough. The strong start bodes well for Tuesday when several more euro benchmarks including Bank of Ireland and BPER are due.

Westpac successfully priced the first euro-denominated covered bond of the year on Thursday amid hopes that it will set a positive tone for next week — which is expected to be the busiest of the year. But with confidence still lacking following a string of underperforming deals issued at end of last year, there is still some trepidation that the supply glut will cause a further re-pricing.