Euro

BPCE, Muenchener Hypothekenbank and Belfius Bank all launched 10 year covered bonds on Monday, underscoring the impression that investors are confident European yields could keep heading lower. Where once long end demand was dominated by real money, banks are now more dominant, a change that has been driven by the improved status of covered bonds in the liquidity coverage ratio.

Berlin Hyp is set to open books for a quick-fire five year on Monday and ahead of the Germany-Portugal World Cup match later that day. MuHyp and BPCE have also mandated leads.

Following the June 5 ECB announcement Bonos have rallied strongly, while Cédulas have reacted to a lesser extent, leaving clear performance potential, a Barclays research note published on Thursday argues. But what is nice in theory is more difficult in practice, traders said — large blocks of Cédulas are difficult to source without pushing up prices.

The Austrian government's decision on winding up Hypo Alpe Adria is a sign of waning state support said Fitch on Friday. The announcement comes as Standard & Poor’s put the ratings of seven Austrian banks on credit watch negative, leading Commerzbank research to suggest selective Austrian covered bonds could soften.

Royal Bank of Canada opened books on Thursday for its keenly anticipated inaugural covered bond of 2014. The deal builds its euro curve and establishes RBC as the benchmark Canadian issuer in euros. Though wider than its last five year, the 0.75% coupon was 0.5% below its last funding in this duration and shows the impact of the ECB's recent action.

Deutsche Kreditbank (DKB) opened books on Wednesday on an Aa1-rated €500m 10 year mortgage-backed Pfandbrief, its second deal of the year and the third 10 year print to come out of Germany in 2014. A lead banker on the deal described the reception as tepid — a further indication of investor frustration with slender coupons offered by second tier Pfandbrief issuers, particularly on longer tenor bonds.

The European Banking Authority (EBA) believes that the preferential risk weighting for covered bonds is warranted in principle. However as covered bonds issuers can fail, covered bond frameworks should converge to a common standard in certain important areas, and this may need to be implemented within a two year time frame, said the regulator on Tuesday.

Mediobanca was the sole issuer to put its head above the transaction parapet on Tuesday morning following Mario Draghi’s speech on Thursday. Offering a €750m five-year trade to a supply-hungry market, the deal priced at least 3bp through fair value, according to a lead banker on the deal — a clear signal that the periphery tightening story is not over yet.

Deutsche Kreditbank has mandated leads for its second deal of the year and the third 10 year issued from Germany this year. Meanwhile, there is speculation that several Canadian issuers could return to the euro market.

While markets on the continent were closed for business on Monday due to public holidays, syndicate bankers in London were planning a busy week ahead. With a broadly positive reaction to European Central Bank president Mario Draghi’s Thursday speech seen across credit markets into the end of last week, conditions remain strong for primary issuance. On Friday the iTraxx Senior index closed 8bp tighter to a new post-2008 low of 60bp. The pipeline could include deals from Westpac New Zealand and Caisse Centrale Desjardins du Quebec.

Veneto Banca has issued its second RMBS in as many months, while Banca Sella was set to price its first RMBS deal since 2005 on Friday. The short dated single A rated deals, that offered a compelling triple digit spread, will give covered bonds a run for their money for investors that understand the risk.

Two of the strongest RMBS platforms in the European securitization market hit the market this week, and showed investors are still eager to grab the highest quality paper.