Euro

UniCredit Bank Austria launched its first benchmark covered bond this year, selling a twice oversubscribed €500m no grow trade on Wednesday. The second public sector backed Pfandbrief in as many days was priced in line with revised guidance, attracting almost 100 accounts.

Landesbank Hessen-Thüringen (Helaba) sold Germany’s first jumbo covered bond in almost a year, and the first public sector backed benchmark of 2012. It also enjoyed the largest foreign participation in any German deal this year, and told The Cover it could return with a second trade if conditions are favourable.

Hopes for imminent covered bond issuance dimmed on Monday as the asked for stability proved elusive. With government spreads still widening and background volatility persistent, even top issuers will have to offer positive new issue premiums to compensate buyers, said syndicate officials.

The European covered bond market is stabilising on Friday, with buyers reported in French and Scandinavian names. But the Spanish market remains shaky, and though selective bids returned the macro sovereign backdrop deteriorated after Thursday's brief impovement.

Covered bond supply should restart next week given a stable opening, said syndicate officials on Friday, and several issuers are looking to launch trades. But with upcoming elections in France and the market still full of uncertainty after the renewed volatility of early this week, headline risk could keep second quarter supply muted.

The value of collateral backing Cédulas and RMBS came under increased scrutiny on Thursday following the publication of Banesto’s first quarter results. Unlike in many jurisdictions, Spanish cover pools are not indexed to the declining value of house prices, with the result that they can quickly become overstated.

Spread tightening has stalled after the first quarter rally, according to DZ analysts, who urged investors to reposition themselves in preparation for spread widening. But with many investors still on holiday, the secondary market has become easier to move with smaller tickets, and traders said it was too early to draw conclusions from an increase in selling.

German ship financing banks have been roadshowing in the US to boost their Schiffspfandbriefe investor base but the industry is unlikely to attract a new investor base soon, said market participants.

Covered bond issuance in the first quarter of 2012 was the second busiest ever for the first quarter. Though euro-denominated issuance fell by 45%, this was offset by a large rise in volumes of other currencies such as sterling, dollars and Australian dollars.

The assets that public sector Pfandbrief issuers select as collateral have become more important, according to Moody’s. As concern around peripheral eurozone sovereigns mounts once again, the rating agency reported that some programmes have increased their exposure to peripheral countries and to assets in sub-investment-grade countries.

French legislation and a strong structure allowed Axa Bank Europe SCF to price a jumbo trade backed by Belgian collateral inside of where Belgian government bonds were trading. Even if long awaited covered bond legislation arrives in Belgium later this year, the issuer told The Cover it intends to remain loyal to Obligations Foncières.

Axa Bank Europe SCF launched its third and largest euro benchmark covered bond on Tuesday, pricing a €1bn trade at the tight end of guidance. Investors seemed untroubled by the rare RMBS collateral, allowing Axa to follow recent French trades in offering a minimal new issue concession.