Europe

Eurohypo released its first half results on Tuesday, reporting big public finance burdens caused by the Greek debt crisis, but a positive forecast on its commercial real estate business.

Government bond yields for Spain and Italy tightened on Monday morning after the European Central Bank’s announcement that it will buy up the countries’ sovereign debt, but moves in covered bonds were more conservative. Bid offer spreads for most peripheral paper remain near the record levels reached last week, said traders.

Moody’s confirmed covered bonds issued by Nationwide Building Society and Coventry Building Society at triple-A on Monday, and removed them from negative review. As the only large UK covered bond issuer at risk of a ratings downgrade, Deutsche Bank analysts said Nationwide’s retention of a triple-A rating for its covered bonds was clearly positive.

Core European investors are much more pessimistic than two months ago, according to Crédit Agricole’s latest sentiment index, which showed an even greater decline in issuer sentiment. Investors expect further deterioration in Spanish and Italian covered bonds, but at a slower rate than over the last two months.

Moody’s cut the residential mortgage backed covered bonds of two Cypriot issuers to the border of sub investment grade on Thursday, following a downgrade of Cyprus and the respective bond issuers.

OTP Mortgage Bank priced a €750m floating rate covered bond on Wednesday, but the market is not sure what to make of the trade, which was driven by a substantial reverse enquiry and for which statistics on allocation were withheld.

With its 10 year benchmark covered bond still sidelined by market conditions, Bayerische Landesbank on Tuesday tested investor appetite for something totally different: €250m of 18 month floating rate covered notes.

An Italian covered bond investor talks to The Cover about the sovereign market malaise and his position on covered bonds. The increasingly desperate situation shows little sign of relenting, he says, while activity is mostly focused on relative value versus the senior market.

Standard & Poor’s on Monday downgraded 46 multi-cédulas totalling €103bn, and removed them from credit watch negative, because deterioration in the creditworthiness of the participating banks has raised credit risk in the transactions.

Four Greek covered bonds on the brink of junk status will remain on rating watch negative, though structural adjustments have strengthened the programmes. Fitch maintained mortgage covered bonds issued by Alpha Bank, Eurobank EFG, National Bank of Greece (NBG) Programme II and Piraeus Bank on rating watch negative on Friday.

Moody’s placed Spanish government bonds (Aa2) and the debt and deposit ratings of five Spanish banks on review for downgrade on Friday, because of funding pressure facing the Spanish government, and challenges to fiscal consolidation. Though the covered bonds of the banks concerned are likely to be unaffected in the short term, the negative rating action is worrying for weaker Spanish issuers.

Moody’s took negative rating action on covered bonds issued by two Danish banks on Thursday, and withdrew the ratings on one. Nykredit Realkredit’s Capital Centre D was downgraded and three of BRFkredit’s programmes were placed on review for downgrade. The rating agency withdrew its rating on Realkredit Danmark’s covered bonds. An S&P report released on Thursday suggests the agency is increasingly bearish about the state of the Danish banking sector.