Europe

French guaranteed home loans, which make up the majority of the country’s housing loan market, could potentially face systemic pressure given provision is made by less than a handful of private companies. But Moody’s says such risks have been factored into its analysis, and in any case, should any of the insurers get into difficulty, the state would almost certainly step in to support the market.

Activity in the secondary market has been focussed on France where several banks report Street and real money interest – even as the French government bond spread to Germany hit new spread wides. Meanwhile, syndicate officials cast doubt on whether the ECB’s purchase programme will materially benefit Italy and Spain.

Euro jumbo issuance since August fell by a third compared with last year, but a look at the redemption calendar for this quarter and the first quarter of 2012 shows that funding pressures will not wait for Europe to fix itself. The ECB purchase programme may help some borrowers plug funding holes, but with only €40bn at its disposal, not all issuers will be able to rely on the ECB to refinance assets.

Moody’s cut SBAB’s issuer rating from A1 to A2 on Wednesday, because of challenges to the bank’s standalone creditworthiness due to low profitability, a concentrated and unseasoned loan book, and an almost total reliance on market funding.

The ECB’s quest to bring loan-level disclosure to the European ABS market moved forward on Tuesday, with technology and data firm Sapient Global Markets appointed to build the database providing loan-level data to the market. The announcement comes as covered bond borrowers grapple with the provision of far less onerous transparency initiatives being demanded by investors.

The impact of the ECB’s second purchase programme could be lessened considerably by renewed volatility in the markets. Equity and fixed income indices plummeted on Tuesday morning, wiping out at a stroke the positive reaction seen at the end of last week to the European summit meetings that had attempted to inject some confidence back into markets.

A major covered bond investor talks to The Cover about the ECB’s purchase programme and what could follow. He does not think it will adopt a needs-based approach and suspects that a prospective spread tightening will be short-lived.

Peripheral covered bonds tightened against government debt on Monday, undoing sovereign outperformance following last Thursday’s rally. Bid offer spreads continued to widen across the board as participants remain cautious ahead of purchase programme details.

Activity has once again shifted into dollars, with European investors paralysed by a lack of detail on the upcoming ECB covered bond purchase programme and a resolution of the sovereign debt crisis. Meanwhile Canadian banks issue dollar deals with ease, and Australia’s big four could be swayed into taking the same route for their respective debuts, said syndicate officials.

Bank Austria has followed BPCE successfully raising €500m with a five year public sector backed covered bond that priced at the tight end of guidance on the back of an exceptionally granular book. The decision to price ahead of next week’s announcement on the purchase programme caught some bankers by surprise. But with significant central bank demand in the book, it is doubtful whether there would have been much to gain from postponing.

Market indices rallied on Thursday, following the EU’s unveiling of its Grand Plan to remedy the eurozone’s woes. BPCE was quick to capitalise on the upturn, securing nearly four times oversubscription for a minimum €200m tap of its 10 year. Bank Austria also moved swiftly on the positive mood and is taking IOIs for possible pricing this afternoon or Friday. Bank of Montreal showed the strength of US demand on Wednesday, when it attracted $3.75bn of demand for its $2bn three year deal. But the floodgates are unlikely to open fully ahead of November 3 when the ECB will announce details of its purchase programme.

German issuers with US dollar assets in their cover pools may start looking at the US 144A market early next year, following the German Association of Pfandbrief Banks (vdp) first US roadshow in three years.