Europe

The covered bond market was quiet on Thursday, though syndicate officials said there were several borrowers that would like to complete trades before the summer lull. Prospective issuers have ample reasons to wait given that a resolution of the situation in Greece appears elusive. However issuers in the UK, New Zealand and Germany will have finished roadshows by the week’s end, and Italian and French names are monitoring the market.

Standard and Poor’s downgraded four Greek covered bond issuers from B to CCC, and removed them from credit watch negative on Wednesday, because of increased risk to their financial profiles.

Aktia Real Estate Mortgage Bank defied difficult market conditions on Wednesday to build a twice covered book for an intended Eu500m five year trade, which allowed the borrower to increased the deal size to Eu600m. The result stands in contrast with fellow Finnish issuer Sampo Housing Loan Bank, which found the going much tougher on Tuesday for its Eu1bn ten year trade.

Sampo Housing Loan Bank sold a Eu1bn 10 year transaction on Tuesday, which despite high credit and cover pool quality priced at the wide end of guidance. Syndicate officials pointed to a rise in rates and general aversion to risk among investors as two factors that held the transaction back.

Santander’s latest cédulas territoriales could represent a shift in the funding policy of Spanish issuers, which are constrained by limited issuance capacity, said Natixis analysts. The transaction's poor result, however, could dissuade Spanish borrowers from turning to cédulas territoriales as their capacity to issue cédulas hipotecárias decreases.

While Finland dominated the primary market on Tuesday, pressure on peripheral names was still the story in the secondary. Italian borrowers are lining up, with a trio of issuers said to be monitoring the market, though a difficult backdrop may mean postponement until next week.

Finnish issuers Sampo Housing Loan Bank and Aktia Real Estate Mortgage Bank came to market on Tuesday. Aktia began taking indications of interest on its Eu500m five year trade following Sampo opening books on a 10 year deal, which will be priced later today.

Standard & Poor's lowered the sovereign rating of Greece from B to CCC on Monday, and removed it from credit watch negative, though the outlook remains negative. The rating agency believes the cut could have a negative effect on four Greek covered bond issuers.

Demand from insurance companies and pension funds for covered bonds has increased this year, according to Barclays research, while interest from central banks and asset managers has fallen. Germany and Austria are the only regions where overall investor interest for covered bonds has decreased noticeably, though in some jurisdictions investors have participated far less in issuance from certain countries.

Moody’s placed mortgage backed covered bonds issued by Banco Santander Totta (BST) on review for possible downgrade on Friday, after placing BST on rating watch negative on June 9.

Fitch downgraded cédulas hipotecárias issued by Caja de Ahorros y Monte de Piedad de Navarra from AA+ to AA on Friday, and removed them from rating watch negative, following a downgrade of the issuer rating from A- to BBB+.

Moody’s increased the refinancing margins and lowered the timely payment indicators (TPI) from very high to high on 12 Danish covered bond programmes on Friday, following a rise in adjustable-rate mortgage loans (ARM) in Danish cover pools.