Euro

After being absent from the euro covered bond market for nearly two years, Danske Bank made a surprise return on Thursday, mandating leads and opening books for a €1bn seven year deal priced at the tight end of guidance.

SEB was tempted into a surprise return to the euro covered bond market by the best relative funding levels versus its domestic market for some time, its head of treasury management told The Cover on Tuesday. John-Arne Wang said SEB saw a chance to grab tighter funding on Monday, thanks to a three week drought in the euro primary market.

A multi OBG deal from Italy’s state owned public financing institution Cassa Depositi e Prestiti now looks unlikely, bankers told The Cover on Friday. CDP is expected to decide by the end of this month whether and how to proceed with plans to funnel long term funding to Italy’s smaller banks, which are currently locked out of the markets. A multi issuer Obbligazioni Bancarie Garantite had been touted in the market this week, but industry officials on Friday said this was the least likely option, given the costs involved.

Wednesday’s sterling deal from Bayerische Landesbank came as welcome relief to supply starved investors but the paucity of supply has also been particularly marked in the euro market, where issuance volumes are half of last year’s shrunken levels. The technical mismatch is helping to spur demand in the secondary market where Spanish deals are once again in vogue.

The former Dexia Municipal Agency, now Caisse Française de Financement Local (Caffil), is considering whether to appeal against a French court judgement over three structured loans it made to a local authority. With as many as €10bn of similar loans in its €70bn collateral pool, the market is watching developments closely.

Changes to Spanish mortgage law will not lead to lower overcollateralisation, as the rules will only apply to new loans, Fitch said on Tuesday, contradicting an earlier statement from Moody’s.

Spanish government bonds performed well on Friday but long term concerns about the outlook for Spain are spooking traders who are increasingly willing to consider leaving illiquid Cédulas shorts uncovered. In core markets, traders are focused on the Bund swap spread and suggested that a potential sell off could be accompanied by a spread tightening.

Berlin Hypothekenbank (BHH) struggled to sell a €1bn mortgage Pfandbrief at its target spread after opening books at the wide end of initial price thoughts, at 1bp through mid-swaps, on Monday. The tight level surprised bankers, due to the recent decreasing bid for core names offering slim yields and even slimmer premiums.

Berlin Hypothekenbank has mandated banks for a jumbo five year Pfandbrief and at least one other German name is circling the market. However, bankers told The Cover that issuers will wait for the market to shake off its fatigue before further deals emerge.

Cédulas have dominated covered bond issuance so far in 2013, aided by a remarkable rally that has seen nine deals printed this week. However, oversubscription rates have dwindled this week, and both core and periphery issuers may need to increase what they offer investors to get their attention in a crowded market.

This week’s primary deals have posted a mixed performance, but with the market backdrop still supportive, there is a lot of confidence that spreads will stabilise for the less well placed deals that were seen this week.

KBC Bank and Belfius Bank achieved incredible results this week in terms of their spread levels, which now rival not just the best French covered bond names, but the French and Belgian governments as well