Finland

The covered bond market is gearing up to restart next week, said syndicate bankers, who expect at least two benchmark trades to hit the screens. German and Scandinavian borrowers are tipped as the most likely candidates to take advantage of squeezed secondary levels. But with no end to spread contraction in sight, the urge to wait and watch levels grind tighter could cause some borrowers to hold off.

The stressed cover pool losses of Australia’s covered bonds are worse than those in core Europe, Moody’s first performance overview of the jurisdiction revealed on Tuesday. However, Australia still boasts highly rated issuers and impressive collateral scores.

European covered bond issuers, along with senior unsecured financials and investment grade corporates, were this week presented with excellent funding conditions, despite a ratcheting-up of pressure on Spain and Italy in the early part of the week.

Secondary covered bonds spreads are grinding tighter as buyers faced with negative yields in the sovereign market drive short dated covered yields towards zero. While core jurisdictions wallow in a sea of demand, investors are still averse to peripheral paper, but the wide spread gap could cause Spanish and Italian spreads to bounce back, said bankers.

Finland’s OP Mortgage Bank shrugged off an appalling market backdrop to launch an exceptionally well received €1.25bn deal on Wednesday. Its first covered bond of 2012 provided solid proof of the covered market’s resilience to macro concerns and added weight to syndicate bankers’ arguments that issuers should take advantage of demand overhang.

Canadian issuers will no longer be able to use insured mortgages as collateral for covered bonds. Finance minister Jim Flaherty introduced a bill into the Canadian parliament on Thursday that will create a register for covered bond issuers. The bill will also prohibit the use of mortgages insured by private insurers or by the government backed Canadian Mortgage and Housing Corp (CMHC).

Nordea Kredit Realkreditaktieselskab (Nordea Kredit) announced an auction of three year Danish covered bonds on Thursday, a day after the Nordea Group’s Finnish arm launched its second jumbo covered bond of 2012.

Germany’s Helaba broke ranks with cautious covered bond issuers on Tuesday to launch the first euro benchmark trade for two weeks. The rare borrower found strong demand for a €1bn public sector backed transaction, and another deal out of core Europe is expected on Wednesday, said syndicate bankers.

Spread tightening has stalled after the first quarter rally, according to DZ analysts, who urged investors to reposition themselves in preparation for spread widening. But with many investors still on holiday, the secondary market has become easier to move with smaller tickets, and traders said it was too early to draw conclusions from an increase in selling.

Sovereign markets have started to stabilise but covered bonds have lagged this move and remain under pressure in the secondary market. The focus has been on Spain but dealers also reported weakness in French covered bonds. In the primary market, issuance hopes remain dim, though bankers think there may be room for a Swedish or Finnish deal.

The performance of cover pools has deteriorated, Crédit Agricole research has found after examining Moody’s, Standard & Poor’s and Fitch’s data. But this is not because of worsening credit risk but rather because of market risk.

Covered bond supply was restricted to an impressive €850m tap from BPCE on Thursday, taking the number of long dated French transactions already this year to six.