Euro

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.

Nordea Finland and Sparebanken Vest Boligkreditt achieved the best results among the slate of deals that were issued by core covered bond issuers this week. Both transactions attracted among the highest level of over subscription, despite pricing at the tightest spreads.

Initial price thoughts are a useful price discovery tool in illiquid markets. But in core markets where liquidity is high, they can obfuscate how successful a deal has been. It is time to consider doing away with them where possible.

Compagnie de Financement Foncier no longer holds securitisations on its balance sheet, freeing it to issue benchmark deals that comply with the Capital Requirements Directive and will be repo eligible.

Thursday’s suite of covered bond issues from Australia and Switzerland underscored a growing impression among bankers that pricing core transactions is taking more forethought and effort. Whereas deals were invariably easy to price last year, demand seems to have become more finite. Books are taking longer to build as investors need more cajoling to meet issuers’ funding targets, in stark contrast to peripheral credits.

Portuguese and Spanish issuers, Caixa Geral de Depósitos and Banco Mare Nostrum launched deals on Wednesday that, despite being aggressively priced, were heavily oversubscribed. The deals showed demand is clearly skewed to higher yielding credits, boding well for second and third tier peripheral issuers who are looking to cut central bank funding dependence.

The year’s first batch of covered bond issues have been easily absorbed by a wide range of investors producing comfortably oversubscribed books. The first peripheral deal mandate has come from Portugal and another from Spain is expected shortly.

Four issuers from Finland, France, Australia and the UK are set to price covered bonds on Tuesday and Wednesday. Market conditions are broadly constructive, especially for higher yielding names, said bankers, but core issuers might have to offer concessions to tempt investors in a busy start to the year.

Changes to Italy’s covered bond law improve the segregation of cover pool assets and are good for the market, according to Moody’s.

A better macroeconomic outlook and more transparency were two reasons why Moody’s chose to upgrade the ratings of a dozen Spanish covered bond programmes. The move presages spread tightening in the New Year when liquidity returns, traders said on Monday, with second tier Spanish covered bond programmes set to move closer to those of the country’s national champions.

ABN Amro has become the second bank this year to remove a clause in its covered bond documentation that, in an issuer insolvency, stipulated pro-rata distribution of overcollateralisation to cover asset-liability mismatches for maturing bonds. As a result, the bank has lowered the amount of OC needed for a triple-A rating, making its programme more collateral efficient.

National Bank of Canada is still deciding when to launch a covered bond in euros, with bankers insisting there is enough liquidity for deals this week, though they conceded that very few issuers are under any pressure to pull the trigger.