Europe

The Ukraine crisis and the Russian slowdown has so far only directly affected Central Asia but the wider region is at risk of the political situation deteriorates markedly

Credit sentiment is positive, and it seems unlikely that the European Central Bank would take anything other than an accommodative stance at next week’s policy meeting, but bankers are getting cautious that valuations are becoming overstretched, particularly in those markets which have until now been considered safe havens.

The more modest year-to-date tightening of Irish covered bonds relative to other peripheral jurisdictions has created a value opportunity, says Barclays research, which recommended buying Irish covered bonds versus Irish government bonds. However, traders say limited liquidity in the secondary market for peripheral names means that the trade idea will be difficult to executive in practice.

Jochen Hartlieb has joined IKB Deutsche Industriebank from Bayerische Landesbank.

After issuing its second covered bond of the year on Tuesday, Crédit Foncier de France is set to return to the capital markets and fund its residential mortgages with an RMBS, the first sale of the product from France since 2006. But in contrast to covered bonds, the RMBS is driven by capital considerations with the leads confirming that the issuer intends to place all of the subordinated notes.

Italian banks' repayments of liquidity drawn under the European Central Bank’s (ECB) long-term refinancing operation (LTRO) have been slower than in most other European countries, said Fitch on Wednesday. Analysts say Italy’s smaller banks are going to be increasingly incentivised to term out ECB liquidity with publicly syndicated covered bond issuance, but with stress test results due in October, time is running out.

Compagnie de Financement Foncier (CFF) came to market with its second Obligation Foncière of the year on Tuesday, matching the March deal’s €1bn size but this time opting for a 10 year, rather than five year, tenor.

Depfa ACS covered bonds tightened by 30bp on Thursday morning, after German press reports fuelled speculation that it would not be sold to an unrated buyer, but would remain in the hands of the German government. As Depfa’s bonds have a higher rating than other domestic Irish covered bonds, they have potential to tighten much further, bankers told The Cover on Thursday.

The recent correction lower in Multi-Cédulas following Standard & Poor’s rating downgrades last week has almost run its course. Though there is a slight risk that month-end portfolio re-balancing will provoke further near-term losses, the longer range picture is fundamentally and technically well supported, bankers told The Cover on Wednesday.

The Swedish Bankers Association has published a letter to the Basel Committee on Banking Supervision which says that the Net Stable Funding Ratio (NSFR) would cause banks to rely less on covered bond funding, and more on alternative sources which are not as stable.

The new Banque de France SME funding vehicle could be used for ECB quantitative easing, says BBVA. The Spanish bank’s research team say that, given the ECB’s new readiness to fund SME assets through QE, the Banque de France programme could be the ideal vehicle to channel these funds.

Deutsche Postbank AG announced it has entered into a voluntary commitment to maintain nominal overcollateralisation (OC) of its mortgage cover pool above the statutory legal minimum. The commitment was triggered by Fitch’s negative rating action on its covered bonds, which will quickly be remedied, the agency told The Cover. However, whether voluntary overcollateralisation will be there for investors in the event of an issuer’s insolvency under new regulatory arrangements is an open question.