Europe

The stressed cover pool losses of Australia’s covered bonds are worse than those in core Europe, Moody’s first performance overview of the jurisdiction revealed on Tuesday. However, Australia still boasts highly rated issuers and impressive collateral scores.

European covered bond issuers, along with senior unsecured financials and investment grade corporates, were this week presented with excellent funding conditions, despite a ratcheting-up of pressure on Spain and Italy in the early part of the week.

The eurozone crisis has intensified, with talk of a breakdown of the single currency returning to the fore and undermining appetite for risk

Standard & Poor’s has resolved rating watches on 12 multi-Cédulas and, in a rare move, even upgraded five other programmes. But hedge funds and fast money buyers continue to dominate interest in the multi-issuer asset class, despite some ratings being as high as double-A.

The covered bond market has remained active into late July and syndicate bankers say conditions are still good for further benchmark deals in the wake of ABN Amro’s success this week. With spreads returning to 2010 levels ABN chose to bring forward a jumbo deal originally scheduled for August. But as the macro outlook deteriorates, issuers cannot be sure that the secondary rally will survive the summer break.

Fitch has resolved its rating watch on Italian covered bonds, downgrading four programmes to between double-A and triple-B. This round of cuts was driven solely by new overcollateralisation requirements, but Fitch is bringing in a new methodology and could look at Obbligazioni Bancarie Garantite (OBGs) again soon.

ABN Amro launched a €1.5bn seven year benchmark covered bond on Tuesday, building a book of over €4bn for the first Dutch trade since January. Pricing divided syndicate bankers away from the deal. But with the first jumbo transaction in three weeks ABN proved that the covered market remains primed for supply, and could urge other names to take advantage of a closing window.

Deutsche Pfandbriefbank (Pbb) on Monday returned to the covered bond market for the fourth time this year, tapping an outstanding seven year deal. Secondary demand has sent core spreads tighter across the board, and syndicate bankers expect more issuers to take advantage of an exceptionally attractive primary market.

The shares of Russian bank Sberbank may outperform Apple over the next 10 years if Russian reforms go ahead. But there are still clouds in the short term

Investors would be better off in emerging markets, which are well placed to withstand the slowdown caused by the euro zone debt crisis, analysts say

Moody’s said it is concerned that the rising volume of retained covered bonds is allowing issuers to unilaterally relax standards on their programmes. Italian issuers have lowered collateral requirements and delayed the posting of additional collateral through adverse amendments, said the rating agency. Other jurisdictions, such as Spain, that rely heavily on ECB repo funding are also at risk.

A new type of Cédulas backed by export finance loans is being lined up to help ease funding pressures on Spain’s banks. The Spanish government has set out a legal framework for Cédulas de Internacionalización (CI) which should be repo eligible. However, the market is likely to be a small with limited rating de-linkage to the issuer.