Euro

Moody’s has cut its rating of covered bonds issued by EFG Eurobank Ergasias from Ba3 to B1, on review for downgrade, although the bonds remain eligible for repo with the ECB as they are still rated BBB- by Fitch.

Approval to create a new banking group, Kutxa Bank, has prompted Fitch to place the Long-term Issuer Default Ratings (IDR) and Viability Ratings (VR) of two of the three merging cajas, Bilbao Bizkaia Kutxa (BBK) and Kutxa, on Rating Watch Negative.

Deutsche Pfandbriefbank (pbb) has returned to the covered bond market after almost two years away. It sold a €500m five year mortgage Pfandbrief which was barely subscribed.

In the first euro benchmark trade for four weeks, Crédit Mutuel Arkéa sold its inaugural public sector Obligations Foncières on Tuesday. Syndicate officials had not expected a French issuer to reopen benchmark supply, though demand from domestic insurance buyers has been evident recently.

Deutsche Pfandbriefbank (pbb) returned to the covered bond market on Wednesday with its first benchmark since January 2010. The €500m five year trade is the second of three Pfandbriefe launched in the last two days and offered one of the highest spreads for German paper this year.

European bond markets reacted poorly to the no-committal anodyne ECOFIN meeting in Poland and the Berlin election result over the week end with the Bund yield predictably gapping lower on Monday. Credit markets followed suit with the iTraxx Senior Financials ending +24bp at 286bp and the SovX W Europe finishing +13bp at 338bp. But the moves lacked conviction and the jury is out as to whether the primary market will remain closed.

Spreads on French bank paper have been unaffected by Moody’s downgrades, which had been widely anticipated.

Nordic covered bond issuers Sparebank 1 Boligrekddit, Swedbank and Nordea Bank Finland all priced benchmark deals in the past week with each getting a quite different reception. Meanwhile Austria Erste bank issued a small but successful sub €1bn deal.

Abbey National came to market on Thursday morning with a five year, €1bn benchmark, making a hat-trick of euro benchmark issues from the UK this week. But some syndicates were concerned that Abbey’s association with peripheral Europe through its Spanish parent would make it a tougher sell than the UK banks that preceded it.

BPCE took French covered bond supply in euros to over €44bn for the year on Thursday, launching its second Obligations à l’Habitat. The 10 year transaction followed Crédit Agricole’s five year which was increased due to the high number of quality orders.

With 14 benchmarks in just over one week and several issuers on roadshow, analysts are debating when covered bond primary market momentum will slow. Recent issuance has been well received and generous new issue premiums have ensured spreads have held around re-offer. But with supply coming at all points on the curve, and as many as three trades from some jurisdictions, prospective issuers may find placement increasingly difficult.

RBS on Wednesday secured the largest order book since the European covered bond market re-opened last week, demonstrating the strength of the bid for UK covered bond paper. It was the second UK bank in as many days to print a €2bn deal, and it is the first time the borrower has secured funding with a spread over mid-swaps of less than 100bp.