Europe

Swedish finance minister, Anders Borg’s call for the country’s banks to reduce their reliance on covered bonds to fund mortgages has not won support among bankers, who questioned the need to tinker with a funding mix that has served Swedish banks so well.

The most interesting take away from this week’s Bank of Ireland covered bond was the improved depth and quality of demand, according to Darach O’Leary, head of wholesale funding at Bank of Ireland.

All bar one of France’s public sector covered bond programmes face downgrades after Standard & Poor’s cut the Republic of France by one notch from AA+ to AA, Crédit Agricole research said on Friday. However, French mortgage backed covered bonds should avoid any downgrades. In any case dealers were certain the impact would be negligible.

Spanish covered bonds issued by tier two banks could fare better than their Italian equivalents, even though Italian spreads have been less volatile than Spanish ones this year, RBS said on Thursday.

Repossessed Spanish properties are being sold at levels on average 71.6% lower than original valuations, Fitch said on Thursday. New mortgages are being originated with LTVs of 100%, affordability has not improved since 2008 and housing stock remains exceptionally high, its report said.

Bank of Ireland Mortgage Bank opened books for a 3.5 year covered bond on Wednesday after mandating leads a day earlier. The deal took advantage of a strong performance in Irish bonds in the wake of improving economic fundamentals, and was the tightest spread for an Irish issuer since late 2010 when Ireland accepted a €85bn sovereign bail-out.

After a spate of seven year deals from Scandinavian banks, Norway’s DNB Boligkreditt was set to price a €1.5bn five year on Tuesday. This will sit well with investors’ year-end liquidity constraints, said bankers.

The new Norwegian government’s pre-election pledge to ease mortgage lending standards would be credit negative, Moody’s said on Monday. Norwegian households are already highly indebted, house prices are overvalued and inflating the credit bubble further could result in a failure to repay high LTV mortgage loans under stressed market conditions, it said.

Hypo Noe Gruppe Bank AG is set to issue its first mortgage-backed deal early in 2014 after getting a triple-A rating from Moody’s. It will be collateralised mostly by promoted housing company loans and commercial loans of average quality.

Banks continue to favour senior unsecured over covered bonds, but spreads will soon start to reflect the fundamentally weak claim of senior bondholders, RBS said on Wednesday, particularly for Spanish deals.

Norddeutsche Landesbank priced its second US dollar covered bond benchmark this week, attracting a multiple oversubscription from a diversified range of high quality global investors. Though expensive, the funding showed the borrower’s commitment to building its US curve and establishing solid name recognition which will help it efficiently match-fund its dollar assets.

Norddeutsche Landesbank is set to open books for a US dollar denominated benchmark, having mandated leads for a roadshow two weeks ago. Meanwhile, Berlin Hypothekenbank on Tuesday successfully placed a €125m tap of its five year deal at deeply sub-Euribor levels, highlighting the funding disparity for German issuers in dollars compared to euros.