Europe

German, French and UK issuers launched trades on Tuesday as indices tightened and stock markets rose on hopes that a solution to the eurozone debt crisis had been outlined over the weekend.

China’s sovereign wealth fund won’t invest in new bonds to support the eurozone rescue, CIC president Gao Xiqing has warned

Secondary markets broadly remain under pressure, though there are cracks of light appearing here and there. The long end of the French market seems to be stabilising, there have been some buyers of Cédulas and there is still a smattering of interest in selective Scandinavian names. But the outlook remains dim and relative value against other sectors suggests covered bonds are expensive.

Denmark’s Nykredit has finished a 12 day auction to refinance its adjustable rate mortgages, selling a larger volume at cheaper levels than last year. Nykredit’s decision to pool all ARMs into a new capital centre, following Moody’s concerns that these loans represent a source of greater refinancing risk, clearly paid off.

Italian CDS reached a record wide on Thursday morning as confidence in the country’s credit health and political response to the crisis decline. Covered bond analysts have altered their stance on Italian covered bonds, with a stagnant housing market, weak economic prospects and a lack of political consensus making the outlook increasingly negative.

Although issuers in the pipeline remained in risk off mode on Wednesday, Caisse de Refinancement de l’Habitat provided some supply, tapping its February 2023. The tap was a rare bit of good news for the French market and suggested that there are investors looking for opportunities, despite the wider credit market volatility.

Italian covered bonds have widened further following Standard & Poor’s downgrade of the sovereign’s credit rating from A+ to A on Tuesday but the covered bonds issued by UniCredit and Intesa Sanpaolo have outperformed BTPs, although in a very illiquid market.

European bond markets reacted poorly to the no-committal anodyne ECOFIN meeting in Poland and the Berlin election result over the week end with the Bund yield predictably gapping lower on Monday. Credit markets followed suit with the iTraxx Senior Financials ending +24bp at 286bp and the SovX W Europe finishing +13bp at 338bp. But the moves lacked conviction and the jury is out as to whether the primary market will remain closed.

Cédulas and multi-cédulas continue to fall under the gaze of rating agencies, with Moody’s putting Banco CAM’s cédulas programmes on review for downgrade and Fitch placing two of Banco de Valencia’s multi-cédulas hipotecarias on rating watch negative. The downgrades come as bankers complain that rating agencies have overlooked certain strengths in these deals.

Santander UK’s Holmes 2011-3 RMBS picked up $2bn of demand in the ‘A2’ dollar tranche, despite challenging conditions in wider markets continuing.

Crédit Mutuel-CIC Home Loan SFH kept the euro market alive on Tuesday with an increase of an outstanding 10 year trade. The €200m tap is the sum total of primary issuance in the last week, though Canadian Imperial Bank of Commerce proved the dollar segment’s resilience to market volatility by taking supply over the same period to $7bn.

Spreads on French bank paper have been unaffected by Moody’s downgrades, which had been widely anticipated.