Euro

After the flurry of covered bond deals seen last week market participants had anticipated that there would be some follow through on Monday. Though it is likely that primary issuance will be seen this week, the supply outlook is likely to remain generally muted over the longer term.

France’s Axa Bank has returned to the market after a five months with a €500m seven year Obligation Foncière (OF). Though the transaction is backed by Belgian residential mortgages, it is structured under French law and, while it offers a decent premium against French OATs, the spread to Belgian OLOs is unattractive.

Austria’s Bank für Arbeit und Wirtschaft (Bawag) returned to the covered bond market for the first time in since 2010 on Tuesday, launching an inaugural mortgage backed benchmark.

After a six month absence Banco Sabadell returned to the covered bond market on Tuesday with a two year cédulas. Though it looks like the borrower will successfully raise its target €500m in line with guidance, bankers on the deal warned that the depth of demand for peripheral paper had become too thin to realistically consider another deal until after Wednesday’s German court ruling on the legality of the European Stability Mechanism.

New Zealand’s ANZ National launched its second ever euro benchmark on Tuesday, finding strong demand for a €750m five year deal. The jurisdiction offers an attractive pick-up over its Australian neighbour, which, together with the hunger for fresh supply, is helping raise the bid for New Zealand covered bonds, said syndicate bankers.

Crédit Agricole and Austria’s Hypo Noe Gruppe Bank launched seven year public sector backed benchmarks on Monday, benefiting from strong domestic support amid an explosion of issuance across the capital markets.

Rabobank’s mortgage lending subsidiary, Obvion completed the first public RMBS deal of the autumn, pricing its Storm 2012-4 deal at levels that offered generous premiums for investors but nowhere close to the covered bond funding achieved by its Dutch peers.

Three European borrowers mandated covered bond deals on Monday, taking advantage of what could end up being only a brief funding window in the wake of the European Central Bank’s announcement last week that it would support peripheral sovereign debt markets.

The strong post-ECB rally seen in Spanish government bonds has resulted in a decent performance of Cédulas, and if the current mood can be sustained it could be only a matter of time before a Spanish issuer takes the plunge. But even if that does not happen, syndicate bankers anticipate three to five deals from other jurisdictions emerging in the next 10 days.

Moody’s cut Santander Totta’s covered bonds in line with the Portuguese sovereign’s new rating ceiling, which caps all the country’s covered bonds one notch above junk.

Covered bond issuance is on hold while the European Central Bank’s meeting in Frankfurt commands all attention. ECB president Mario Draghi is expected to provide details of a sovereign bond purchase programme and peripheral sovereign spreads have already tightened in expectation. But analysts said investors fearing a disappointing programme could switch to into covered bonds — with Cédulas the most likely to benefit from such a shift.

Crédit Agricole gave an investor presentation for its new Obligations Foncières (OF) programme in Paris on Wednesday, ahead of what could be the first covered bond from a French issuer since late March. French spreads have stopped grinding tighter in the secondary market, but some names still trade flat or even through OATs.