Europe

Crédit Mutuel CIC launched its debut Obligations à l'Habitat on Tuesday, taking supply in the new French format since last Friday to Eu3.8bn. The borrower managed to find a secure window for issuance in a market plagued by negative rating actions to print a benchmark deal in line with its own curve, and that of the wider French market.

After mandating leads for a Eu1bn 10 year public sector backed Pfandbrief on Tuesday, Bayerische Landesbank said on Wednesday that it had decided to postpone the transaction because of an announcement by Moody’s on Monday that the bank would remain under review for downgrade.

The primary market has been dominated by core supply particularly weighted towards the long end, but a real test of tier two bank issuance, or tier one names from peripheral jurisdictions, has yet to be seen. The timing could be about right for UK, Spanish and Italian deals to enter the market.

Finland’s OP Mortgage Bank came to market on Friday with the first seven year Scandinavian covered bond of the year, pricing a no-grow Eu1bn trade. Despite the bank’s prime Scandinavian collateral, the transaction fell just short of Eu1bn of orders.

LBBW sold its inaugural public mortgage backed transaction on Monday, the first borrower to bring a deal on a Monday morning since late March. A long awaited trade from Crédit Mutuel CIC Home Loan was also announced. Leads took indications of interest this morning for the borrower’s debut Obligations à l'Habitat, which follows BNP Paribas’ first euro outing in the OH format at the end of last week.

After more than a week without primary euro issuance, BNP Paribas and OP Mortgage Bank on Friday broke ranks and opened books on 10 a year and seven year deal respectively. BNP closed books on a well received Eu2bn transaction by mid-morning, while execution on OP’s Eu1bn no-grow deal was less straightforward.

Moody's today announced senior unsecured bond downgrades for three Danish banks. As a result the over-collateralisation levels of the covered bonds issued by these banks needs to be raised to maintain current ratings. Whether or not local banks choose to keep Moody’s and post significantly more collateral is, as yet, undecided, but after Realkredit Danmark’s decision to drop the agency, it’s possible that others will follow its lead.

Following a transfer of La Caixa’s banking activities to CaixaBank, Moody’s has assigned a Aaa rating to mortgage backed covered bonds now assumed by CaixaBank.

As the first half of the year draws to a close, the original 2010 predictions for total covered bond issuance in 2011 from most analysts appear exceptionally conservative. Several analysts have revised their estimates, and predictions for covered bond issuance over the next six months are in the Eu80bn-100bn range.

The Greek parliament met market expectations yesterday and approved the austerity bill, ushering in a period of mild relief however temporary it turns out to be. Secondary market flows picked up, particularly for Spanish cédulas which showed stronger buying interest. But covered bond syndicate officials do not expect a long window for primary issuance. CRH and OP bank have been quick to take advantage of the more positive mood with the former raising Eu1bn of 11 year funding via a tap and the latter mandating leads for a seven year to be priced tomorrow.

HSBC became the latest issuer to tap the dollar market on Tuesday, pricing an inaugural $1.25bn three year deal. In contrast to euro denominated supply, which in H2 2011 is not expected to match the record amount issued in the first six months of the year, dollar issuance is expected to expand. German and Italian issuers are understood to be preparing debut dollar benchmarks, and the South Korean government today encouraged certain banks to increase issuance.

Covered bond bankers expect the Greek parliament to approve austerity measures in today’s vote, but even if that happens, they do not expect much of a relief rally. If the measures are not approved then it’s likely that the consequences will be catastrophic.