Euro

The increase in retained issuance will have a lasting impact on the primary covered bond market and could reduce benchmark supply to ‘showcase transactions’, Barclays analysts warn.

Standard & Poor’s cut its rating on another pair of Cédulas programmes this week, but the stellar result for Bankinter and UniCredit showed single-A rated trades can still find a stampeding demand. UK buyers bought more than expected in both deals, as syndicate leads pointed to a new class of accounts that could support peripheral transactions.

Bankinter on Thursday swiftly followed peripheral peer UniCredit’s success from the day before. The Spanish borrower launched a blow-out three year benchmark trade 20bp inside initial price thoughts, as traders struggled to keep up with a big spread rally in peripheral paper.

As part of a long term shift in its funding strategy, France’s Crédit Foncier is to start issuing RMBS alongside covered bonds. It is set to begin with a private placement in the coming weeks.

Covered bonds may have caused a growth in mortgage lending and an increase in house prices that now pose a threat to the stability of the Norwegian financial sector, the country’s financial regulator said on Tuesday. To address the risk from the rise of secured funding, Norway’s Financial Supervisory Authority is debating whether to follow other jurisdictions and impose limits on covered bond issuance.

Core covered bonds are performing poorly, with low coupons putting investors off, according to Deutsche Bank analysts. Higher yielding peripheral paper could benefit as a result, but the prospect for fresh benchmark trades from southern Europe remains uncertain.

Investors are cash-rich and covered bond spreads look set to remain fairly stable – ideal conditions for covered bond issuance. However, deal flow is set to remain quiet as most issuers are well funded, and those that could do deals are about to enter blackout period.

French and German covered bonds have outperformed sovereign and agency debt from the same countries, and investors would now benefit from switching out of covered bonds, Barclays analysts have advised. But traders countered that a dearth of new issuance is preventing such profit taking, and will help keep core covered bond spreads tight in the short term.

Nearly a quarter of Spanish mortgages could be in negative equity, Moody’s has warned, but with Cédulas collateral marked at historic levels, investors have little transparency on the value of their claim. An updated covered bond structure is fully warranted, but unless it was legally enshrined, the benefit would be negligible, reports The Cover.

Terra Boligkreditt has mandated for its third covered bond benchmark of 2012. Strong collateral growth and larger funding needs mean it could launch its first ever jumbo trade later this month, said syndicate leads.

The transfer of assets to the proposed Spanish Asset Management Company (AMC) could hit Cédulas noteholders, as it would reduce overcollateralisation. However, as issuer defaults would become less likely, covered bondholders would stand to benefit.

Norddeutsche Landesbank could open books on a debut dollar covered bond as early as Tuesday morning, said syndicate leads on Monday. But the outlook for a first sterling trade from Deutsche Pfandbriefbank is more uncertain.