Europe

Moody’s placed two Greek covered bond programmes on review for downgrade on Wednesday; EFG Eurobank Ergasias’s second covered bond programme and National Bank of Greece’s global covered bond programme, both rated Ba3. The rating agency said the review followed its downgrade of the Greek sovereign on Monday and a review on the issuer ratings.

Peripheral sovereign bonds are once again heading towards their recent widest spread levels but covered bonds, as usual, are lagging the move. Real money buying of peripheral covered bonds has been at levels 60bp through the government in some cases. Volumes are small, however, and bid offer spreads are wide as concerns around volatility continue to weigh in on sentiment.

A trio of Swiss franc deals has been the sum total of European primary market activity in the covered bond space so far this week. DnB NOR Bank, Vorarlberger Landes-und Hypothekenbank and Royal Bank of Canada brought issuance totalling Sfr375m (€328m). Vorarlberger Landes-und Hypothekenbank and DnB NOR Bank came to market on Wednesday, with deals of Sfr125m and Sfr175m respectively.

After digesting the details of a rescue plan for Greece, traders have marked back Spanish and Italian sovereign debt following a brief relief rally on Friday. Secondary market activity was subdued on Monday, and though covered bond spreads have lagged sovereign tightening, making them look relatively cheap, traders said it was never enough to be market moving.

High yields and certain structural attributes have attracted faster money buyers to Portuguese mortgage covered bonds. While traditional investors have left Obrigações Hipotecárias (OH), buyers with high minimum yield requirements have found OH’s structure sound and rates compelling.

The drip feed of staff leaving Landesbank Baden Württemberg’s investment banking team continued this week. Denis Rath will join a protracted list of former LBBW employees that have joined rival firms. After working for five years on LBBW’s French and German covered bond and supra agencies syndicate desk, he is to join Commerzbank, where he is expected to work in senior unsecured debt syndication.

Europe’s politicians agreed on a second rescue package for Greece on Thursday, providing markets with much needed succour. However, covered bond practitioners said this does not mean the market is suddenly in risk-on mode. Investors and issuers, they said, will want to see extended stability in spreads before putting in large bids or printing new paper.

Deutsche Pfandbriefbank (pbb) intends to return to the covered bond market in H2 with its first benchmark deal since January 2010. The European Commission on Wednesday approved state aid provided to Hypo Real Estate Group (HRE), of which pbb is a subsidiary, from the Federal Republic of Germany. In a presentation, HRE clarified pbb’s EC approved business model, which will focus on Pfandbrief eligible business in Germany and other European countries.

Canadian Imperial Bank of Commerce found a window for issuance amid market volatility on Thursday, launching its third Australian dollar deal of the year. In a difficult week for all asset classes, market participants said the A$600m three and a half year benchmark showed covered bonds are living up to their billing as a genuinely global product.

Bank of Cyprus bolstered its available liquidity on Tuesday when it issued and retained €700m of inaugural covered bonds, all of which Moody’s affirmed on the same day as ECB eligible. It is the bank’s first covered bond issue, following the introduction of a Cypriot covered bond law late last year.

A UK based credit investor, who has participated in many of this year’s benchmark covered bond deals, talks to The Cover about the current dilemma facing Europe. He believes that throwing more money at the problem, such as through further EFSF buying, will only provide a temporary solution. Ultimately, there needs to be clear evidence that Europe’s high indebted countries are lowering their deficits. There is every chance that this will take place over the next nine months or so. Both Italy and Spain have made progress and should continue to do so, but the Spanish government is probably in the stronger position. His hopes for Greece remain dim.

The fight for the Danish mortgage system will continue, as CRD IV proposals released on Wednesday left undefined which assets would qualify as Level 1 or Level 2 as part of Basel III’s Liquidity Coverage Ratio (LCR).