Euro

All bar one of France’s public sector covered bond programmes face downgrades after Standard & Poor’s cut the Republic of France by one notch from AA+ to AA, Crédit Agricole research said on Friday. However, French mortgage backed covered bonds should avoid any downgrades. In any case dealers were certain the impact would be negligible.

In the covered bond primary market Münchener Hypothekenbank priced a €125m tap of its 1.125% October 2020 at deeply sub Euribor levels on Thursday, while in the secondary market the strong bid continued across the board, though some dealers had expected rates to sell off, before the European Central Bank announced its rate cut.

Spanish covered bonds issued by tier two banks could fare better than their Italian equivalents, even though Italian spreads have been less volatile than Spanish ones this year, RBS said on Thursday.

Repossessed Spanish properties are being sold at levels on average 71.6% lower than original valuations, Fitch said on Thursday. New mortgages are being originated with LTVs of 100%, affordability has not improved since 2008 and housing stock remains exceptionally high, its report said.

Bank of Ireland Mortgage Bank opened books for a 3.5 year covered bond on Wednesday after mandating leads a day earlier. The deal took advantage of a strong performance in Irish bonds in the wake of improving economic fundamentals, and was the tightest spread for an Irish issuer since late 2010 when Ireland accepted a €85bn sovereign bail-out.

After a spate of seven year deals from Scandinavian banks, Norway’s DNB Boligkreditt was set to price a €1.5bn five year on Tuesday. This will sit well with investors’ year-end liquidity constraints, said bankers.

Hypo Noe Gruppe Bank AG is set to issue its first mortgage-backed deal early in 2014 after getting a triple-A rating from Moody’s. It will be collateralised mostly by promoted housing company loans and commercial loans of average quality.

Banks continue to favour senior unsecured over covered bonds, but spreads will soon start to reflect the fundamentally weak claim of senior bondholders, RBS said on Wednesday, particularly for Spanish deals.

SEB returned to the covered bond market on Monday to issue its second seven year euro benchmark of the year and the second from a Swedish bank in less than a week. Though SEB was unable to match the cheap funding in Stadshypotek’s recent deal, it was placed with more real money investors.

Covered bonds have been well supported this week, with particularly strong bank treasury interest at the front end of the French curve, after the European Banking Authority said covered deserved equal ranking with sovereign bonds for Basel III’s Liquidity Coverage Ratio. In Germany, central banks absorbed real money selling, while peripheral markets outperformed, with Irish bonds leading the way.

After emerging from blackout on Tuesday, Stadshypotek returned to the covered bond market on Wednesday, mandating joint leads for a euro benchmark. Despite pricing at the tightest seven year Scandinavian deal since 2006, the borrower attracted robust demand, in an exercise that, once again, highlighted just how undersupplied the covered bond market has become.

UniCredit Bank Austria returned to the covered bond market for the second time this year to issue the country’s seventh benchmark in euros. Despite pricing with little to no new issue premium the deal attracted good demand from a wide group of investors.