Euro

Kommunalkredit Austria appointed joint leads on Tuesday for a public sector backed deal likely to be launched after a roadshow.

The covered bond primary market sprang back to life on Tuesday as Belfius Bank launched a €500m five year, while Kommunalkredit Austria named leads for a deal to be launched following a roadshow (see other story).

Depfa was little changed in the secondary market on Tuesday, despite having delayed its sale, while dealers reported that the general market had stabilised after earlier weakness.

Belfius Bank has mandated joint leads for a deal to be launched on Tuesday. Meanwhile, secondary market spreads have stabilised, and Irish bonds have outperformed following the country’s rating upgrade. Despite a mixed secondary market tone, investors are bullish on core prospects at the long end due to the curve’s steepness and impact of roll down.

ABN Amro returned to the covered bond market on Thursday, issuing a €1.5bn 10 year deal with an attractive new issue premium. However, with the long end now saturated with supply and the secondary market still looking soft, questions continue to linger.

UniCredit’s decision to issue a three year floating rate tranche in benchmark size was a response to the new regulatory environment and could pave the way for a new market sector, Waleed El Amir the bank’s head of long term funding, told The Cover on Thursday. The new format may help improve funding opportunities for other issuers, particularly in Europe’s periphery.

The Turkish covered bond law will be updated any moment now, paving the way for the first publicly syndicated euro denominated, mortgage backed covered bond. VakıfBank, Işbank, Ziraat Bank, and Akbank are in the frame, but the odds-on favourite to bring the first benchmark sized deal is Garanti Bank, which may surface in the first quarter.

The Italian government is poised to amend the country’s covered bond law to allow issuers to use SME collateral for a new type of dual recourse bank bond or Obbligazioni Bancarie Collateralizzate. If structured with a soft bullet, the uplift above the issuer’s rating would be limited, Fitch said on Tuesday. However, bankers said the prospective bonds would be more likely to use a pass through structure.

Deutsche Pfandbriefbank (Pbb) issued 2014’s second Pfandbrief deal on Tuesday but despite a highly supportive technical backdrop, a generous new issue premium and small deal size, it was unable to muster a convincing level of demand. The anaemic reception was due to the odd choice of an eight year tenor, said bankers, but it also raised concerns over supply indigestion.

Aareal Bank and UniCredit Bank Austria priced successful euro deals in five and 10 year maturities on Monday, while Abbey issued a three year in sterling. All three priced at the tighter end of initial thoughts. However, prospective core borrowers with larger funding needs may need to offer more tempting spreads as the market softened on Monday.

Nine euro issuers took advantage of strong market conditions to raise €8bn in covered bond funding during the first week of the year. The issuers collectively attracted €17bn of demand spread over more than 900 orders, but the pick of the bunch were two borrowers from Spain and Portugal who attracted by far the highest levels of over-subscription over the broadest range of investors.

The public sector-owned French covered bond issuers, Caffil and La Banque Postale, returned to the covered bond market to issue two of the three 10 year deals seen this week. The deals were comfortably oversubscribed and provided exceptionally cheap funding for both issuers.