Europe

Guidance on Nationwide’s Silverstone RMBS is identical to where Santander UK placed Holmes 2011-3 three weeks ago, reflecting Silverstone’s status as a top tier issuer in the UK market, as well as sluggish spread movement in the wider senior RMBS market.

Caisse de Refinancement de l'Habitat is poised to price a €1.4bn 12-year deal at the tight end of mid-swaps plus 120bp-125bp spread guidance. With a book in the region of €1.6bn, supported by robust Nordic, German and UK demand, the deal is a strong endorsement of the French banking system. Though there is doubt over whether other French issuers will follow its lead, the market is clearly there for the right name at the right price — as today’s DNB Nor Boligkreditt’s mandate announcement illustrated.

Nationwide had the audacity to announce, open and price a jumbo deal hours before Thursday’s potentially market moving announcements from the ECB and Bank of England. But its boldness was rewarded as the issuer printed €1.5bn instead of the targeted €1bn, showing the market what could be achieved with the right name, even in the narrowest of windows.

Nationwide’s decision to brave the waters with a €1.5bn five year clearly paid off, with the €2.4bn book sending a strong signal to other borrowers to take advantage of the funding window.

The prospect of another ECB covered bond purchase programme (CBPP) has kept issuers and investors in risk off mode all week, but Nationwide bucked this trend on Thursday and took the market by surprise with a €1.5bn five year deal. The offering is the first €1bn-plus, euro covered bond in more than a month and it stands in stark contrast to last week’s sub-jumbo deals — all on a day that few picked out as a window.

Traders reported muted flows in the secondary market on Wednesday ahead of Thursday’s ECB meeting, amid intense speculation that another round of covered bond purchasing could be announced. Italian bonds have reacted remarkably stoically to the republic’s triple notch downgrade — although this might be due to the absence of bids for second tier institutions.

Moody’s three notch downgrade of Italian sovereign debt, from Aa2 to A2 with a negative outlook, will heap more pressure on ratings of Italian banks, which could have a knock-on effect on covered bond ratings, said research analysts.

With the covered bond market waiting for constructive news out of Thursday’s ECB meeting, primary activity on Wednesday was limited to a €200m tap of Crédit Agricole’s 2021s. Syndicates said the tap showed investors were not totally sidelined, but the market — like other asset classes — was in desperate need of a message that would restore confidence and allow new issuance to be absorbed in the secondary market without provoking a sell-off in outstanding bonds.

Hopes of primary market supply evaporated on Tuesday morning as global equity markets dropped and European iTraxx indices and peripheral CDS widened further. In the secondary market activity focused on the embattled Dexia Municipal Agency, with its spreads widening 20bp across the curve. Dexia’s triple-A covered bond rating is under threat, though talk of its parent bank being placed into joint venture with French entities Banque Postale and Caisse des Dépôts et Consignations could bode well for its covered bonds.

After being among the main beneficiaries of tightening secondary spreads last week, Dexia’s outstanding paper pushed out again on Monday. The group’s share price dropped sharply after Moody’s placed the ratings of Dexia’s three main operating entities on negative review. The agency is concerned about Dexia’s access to short term funding and the increase in the amount of collateral the institution is having to use to hedge derivatives.

Moody’s has cut its rating of covered bonds issued by EFG Eurobank Ergasias from Ba3 to B1, on review for downgrade, although the bonds remain eligible for repo with the ECB as they are still rated BBB- by Fitch.

ssuers will need to pick their timing carefully this week given German holidays on Monday, along with an Ecofin meeting in Luxembourg, a decision on another round of covered bond buying to be taken at Thursday’s ECB policy meeting and US non-farm payrolls on Friday.