Euro

Covered bonds are more stable, higher yielding and offer better protection than sovereign paper, according to Barclays analysts. But liquidity and security also drive investment decisions, and negative government bond yields show how much the market values both, an investor told The Cover.

Moody’s cut one Italian covered bond programme but left another unscathed this week, after the issuers amended their programmes to loosen ratings triggers. The rating agency believes relaxing programme standards hurts investors, but at least one borrower has been able to prevent downgrades through sufficient overcollateralisation.

Raiffeisenlandesbank Niederösterreich-Wien (RNW) is preparing to become the second Austrian Raiffeisenlanesbank to launch a public covered bond. The borrower begins a European roadshow in the second half of August and should bring its mortgage-backed debut in early September.

Covered bond issuers in core Europe have been taking steps to protect their southern European subsidiaries from currency reform should Spain or Italy be forced to abandon the euro.

Multi-cedulas suffered a swathe of downgrades from Standard & Poor’s on Thursday, but analysts and hedge funds say that deeply discounted prices of long-dated bonds look attractive.

Deutsche Hypothekenbank became the second recent German issuer to answer domestic accounts clamouring for paper with a tightly priced tap on Wednesday. But with buyers making enquires on all core names across the curve, opportunistic extensions are an option for a wider range of names.

The stressed cover pool losses of Australia’s covered bonds are worse than those in core Europe, Moody’s first performance overview of the jurisdiction revealed on Tuesday. However, Australia still boasts highly rated issuers and impressive collateral scores.

European covered bond issuers, along with senior unsecured financials and investment grade corporates, were this week presented with excellent funding conditions, despite a ratcheting-up of pressure on Spain and Italy in the early part of the week.

Standard & Poor’s has resolved rating watches on 12 multi-Cédulas and, in a rare move, even upgraded five other programmes. But hedge funds and fast money buyers continue to dominate interest in the multi-issuer asset class, despite some ratings being as high as double-A.

The covered bond market has remained active into late July and syndicate bankers say conditions are still good for further benchmark deals in the wake of ABN Amro’s success this week. With spreads returning to 2010 levels ABN chose to bring forward a jumbo deal originally scheduled for August. But as the macro outlook deteriorates, issuers cannot be sure that the secondary rally will survive the summer break.

Fitch has resolved its rating watch on Italian covered bonds, downgrading four programmes to between double-A and triple-B. This round of cuts was driven solely by new overcollateralisation requirements, but Fitch is bringing in a new methodology and could look at Obbligazioni Bancarie Garantite (OBGs) again soon.

ABN Amro launched a €1.5bn seven year benchmark covered bond on Tuesday, building a book of over €4bn for the first Dutch trade since January. Pricing divided syndicate bankers away from the deal. But with the first jumbo transaction in three weeks ABN proved that the covered market remains primed for supply, and could urge other names to take advantage of a closing window.