Euro

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.

Royal Bank of Canada (RBC) returned to the covered bond market for the fifth time this year, and its second time in euros, to issue a €1.5bn benchmark five year on Tuesday. The deal priced with a concession to where the only other Canadian euro five year was trading — but offered a negligible new issue premium.

Bankers hope for more covered bond deals this week, though they do not expect the wave of primary issuance to continue. The secondary market is well supported, especially for peripheral names, though the multi-Cédulas rally has lost momentum and the sector could be susceptible to profit taking.

OTP Mortgage Bank opened books on a €500m floating rate covered bond on Thursday morning, and set guidance on the mortgage backed deal at 190bp over three month Euribor.

Covered bond primary activity took off on Thursday after the US government voted to extend the debt ceiling deadline to February 7 next year. As many as four issuers from Italy, Hungary, New Zealand and Canada opened books for new benchmarks. But the star turn was Italy’s Banca Carige which, despite strong headwinds, attracted a resounding endorsement from investors for its first deal since March 2011.

After roadshowing nearly four months ago, New Zealand’s ASB Bank finally took the plunge and opened books for a €500m five year deal on Thursday. Despite a high rating and fair spread, the deal competed head on with Banca Carige (see other story) and found only a tepid investor response. At the same time, Canadian Imperial Bank of Commerce opened books for a long three year denominated in Aussie dollars.

HSBC has returned to the covered bond market for the second time this year with a seven year deal which, like its earlier transaction, was notable for its breadth and depth of demand.

Banco Bilbao Vizcaya Argentaria has begun updating the value of properties backing mortgage loans collateralised in its Cédulas. Though this is likely to lead to a decrease in the overcollaterlisation (OC) ratio, Moody’s applauded the move as it will improve transparency on the credit quality of the cover pool assets.