Euro

Swedish banks head a group of possible covered bond issuers, despite resurgent volatility. The Swedes have largely stayed away from the euro market so far this year, opting instead to rely on domestic demand. But analysts still expect the need for diversification and name recognition among Swedish banks to yield euro benchmarks.

Spanish banks’ issuance of retained covered bonds has surged, said Moody’s on Monday, as refinancing needs and the threat of deposit flight drives issuers to the European Central Bank. Together with defaulting loans and scant growth in mortgage lending, the surge will hit overcollateralisation hard, just as a fresh barrage of Cédulas downgrades are poised to make OC requirements more onerous.

Italian and Spanish covered bonds widened on Monday morning under sovereign pressure, drowning out any movement on Intesa Sanpaolo’s public sector backed bonds as a result of the issuer’s exchange offer. The borrower will exchange public sector covered bonds into new mortgage backed bonds of the same coupon and maturity, after Moody’s downgraded the public sector bonds.

Moody’s has welcomed a proposal from the Association of German Pfandbrief Banks (vdp) to take account of peripheral sovereign risk in public sector backed cover pools by applying haircuts based on the probability of default.

Moody’s cut two Dutch covered bond programmes on Friday after taking action on five Dutch banking groups earlier the same morning. Issuers’ large mortgage books and reliance on wholesale funding made them vulnerable in a poor market environment, it said. Meanwhile, analysts expect house prices and house sales to continue their decline.

Cédulas are under renewed rating pressure following Spain’s three notch downgrade by Moody’s. The Spanish covered bond market is likely to fall to single-A as a result, thereby further reducing its potential investor base. With the sovereign’s rating still fragile, additional downgrades would threaten issuers’ access to vital European Central Bank repo funding.

After a flurry of trades from four jurisdictions during the covered bond market’s busiest week in months, the Spanish sovereign downgrade foiled hopes for further issuance on Thursday. But German Pfandbriefe issuers have thrived on volatility, while Caisse de Refinancement de l’Habitat has demonstrated the thirst for yield among European investors. As such the setback in core supply should be merely temporary.

Caisse de Refinancement de l’Habitat launched the largest French covered bond in months when it tapped a 12 year trade for an impressive €750m on Wednesday. But despite evident domestic demand, follow on trades are likely to have to wait until after the Greek elections.

Terra Boligkreditt launched its largest ever covered bond this week and, with increasing redemptions and a growing mortgage book it could soon become an issuer of jumbo deals, its chief executive told The Cover. In addition, a new ownership structure will provide liquidity and capital support, and is expected to lead to rating uplift.

A Belgian covered bond law is almost in place, with final approval by parliament expected in October. At least two issuers are ready to launch deals as early as next January, The Cover heard from delegates at a seminar in Brussels this week.

Deutsche Hypothekenbank Hannover and Aareal Bank launched five year mortgage Pfandbriefe on Tuesday. Both deals were capped at €500m and both were priced at the tight end of revised guidance, as the wealth of domestic demand showed no signs of weakening.

Terra Boligkreditt followed Nordic peer DNB Boligkreditt with a seven year benchmark on Tuesday. Boasting a new ownership structure and collateral of exemplary quality, Terra priced a well received trade inside its outstanding curve.