Euro

The European covered bond market was well supported on Monday by a combination of technical and fundamental factors. Negative net issuance is set to increase, this week’s Federal Open Market Committee (FOMC) meeting is expected to be supportive and the outcome of this September’s German elections is looking more certain.

Hungarian legislators have stepped back from making a retroactive change to foreign currency mortgage loan contracts. The government will now consult with the country’s banking association before taking any action, it said on Wednesday. Bankers had feared that such a move would have severely destabilised markets.

The secondary covered bond market remains well supported, with real money profit taking being easily absorbed, dealers told The Cover on Wednesday. Peripheral national champions are in hot demand and even weaker credits like Cajas Rurales Unidas have stabilised, they added.

Bank Austria opened books for its inaugural €500m five year mortgage backed deal on Tuesday, attracting a book subscribed by more than three times from a wide range of investors. The bank was ready to do the deal weeks ago, but held back on expectations that a downgrade of Italy would hit its ratings.

Fitch will not change its covered bond rating methodology while Europe’s new bank directive remains in draft form, it said on Tuesday. The draft directive has made it explicitly clear that in the event of a bank’s resolution, its covered bonds would be protected from being bailed in. However, this has not yet been reflected in covered bond ratings.

Hungary’s government is considering legislation to retroactively alter foreign currency mortgage loans. Mortgage borrowers would then be able to claim cash back from the lending banks, which could have a knock-on effect on covered bondholders. MPs will debate on the law change on Wednesday, but the share price of the country’s OTP Bank has already tumbled on fears that its 2014 profit would be wiped out if the proposal becomes law.

The secondary covered bond market saw modest flows on Friday but dealers reported a stronger bid for core names, in particular long end French deals which have not reacted to downgrades. In contrast, the multi-Cédulas sector remains offered reflecting its large exposures to the recently downgraded Bankia.

Core European covered bonds were supported on Thursday despite recent downgrades. But weaker Spanish names were under pressure on concerns that the European Central Bank could be poised to reconsider the repo treatment of covered bonds relative to ABS. Meanwhile, primary hopes were hit after it emerged that programme documentation delays could cause Canadian Imperial Bank of Commerce (CIBC) to launch its benchmark in September rather than next week.

Canadian Imperial Bank of Commerce (CIBC), which is roadshowing for a euro covered bond, has the potential to price inside last week’s deal for Quebec, bankers told The Cover on Monday. Bankers do not expect covered bond issuance from European banks until the end of August at the earliest. The market has barely reacted to Friday’s downgrade of France by Fitch and in some cases, spreads have actually tightened.

The distinction between Spanish national champion banks and weaker lenders has become even starker, covered bond traders say. Spreads of multi-Cédulas and Cédulas from second tier banks have moved wider on the back of more rating downgrades.

Landesbank Hessen-Thueringen (Helaba) seized on concerted demand for five year paper and a solid market opening on Thursday to price a €500m tap of its outstanding 1% June 2018 bond, paying only a few basis points over secondary levels.

Canadian Imperial Bank of Commerce is set to be the first Canadian bank to issue a deal using the country’s new legislative framework after it mandated banks for what is most likely to be a euro denominated transaction.