Europe

Intesa Sanpaolo was the most likely candidate to follow UniCredit’s groundbreaking €750m reopener, but could face an even higher spread, investors told The Cover on Wednesday. Italy also represents the only hope for peripheral supply in the short term, as Spain remains priced out of the primary.

UniCredit has rewritten the rulebook this week by pricing a covered bond 100bp tighter than where the Republic of Italy can fund itself. But, other than Intesa Sanpaolo, it is unlikely any other issuer could follow suit.

Though the secondary market was subdued on Tuesday, the tone was still clearly constructive with buyers in virtually all sectors bar the medium part of the multi-Cédulas curve. Though the near term outlook is expected to remain buoyant, dealers are sharply divided on the outlook for this autumn and beyond.

UniCredit drew a stellar reception for the first Italian benchmark in almost a year on Tuesday, with the vote of confidence for peripheral risk raising hopes for follow on trades from Italian and Spanish names.

Covered bonds are more stable, higher yielding and offer better protection than sovereign paper, according to Barclays analysts. But liquidity and security also drive investment decisions, and negative government bond yields show how much the market values both, an investor told The Cover.

An asset manager in Frankfurt tells The Cover about breaking the link between covered bonds and their respective sovereigns, investing in peripheral markets, and the problem with regulatory favouritism.

Moody’s cut one Italian covered bond programme but left another unscathed this week, after the issuers amended their programmes to loosen ratings triggers. The rating agency believes relaxing programme standards hurts investors, but at least one borrower has been able to prevent downgrades through sufficient overcollateralisation.

Raiffeisenlandesbank Niederösterreich-Wien (RNW) is preparing to become the second Austrian Raiffeisenlanesbank to launch a public covered bond. The borrower begins a European roadshow in the second half of August and should bring its mortgage-backed debut in early September.

Not so long ago, it was commonly accepted that bank resolution regimes would hobble senior unsecured issuance. Unlike holders of fully protected covered bonds, which cannot be bailed in, senior noteholders faced the threat of haircuts in the event of bank insolvencies.

Covered bond issuers in core Europe have been taking steps to protect their southern European subsidiaries from currency reform should Spain or Italy be forced to abandon the euro.

Multi-cedulas suffered a swathe of downgrades from Standard & Poor’s on Thursday, but analysts and hedge funds say that deeply discounted prices of long-dated bonds look attractive.

Deutsche Hypothekenbank became the second recent German issuer to answer domestic accounts clamouring for paper with a tightly priced tap on Wednesday. But with buyers making enquires on all core names across the curve, opportunistic extensions are an option for a wider range of names.