Germany

Dealers and investors remain shell shocked by recent events. Despite relatively upbeat comments from the buy side and a continuation of the spread correction, reported secondary activity has been muted. Syndicate bankers are looking towards stabilisation of the Bund/swap spread and do not rule out the prospect of issuance, though it may be limited to taps.

Secondary market dealers reported little trading activity on Tuesday and described the market as being dysfunctional. Despite that, some participants are trying to take advantage of this price opacity. After opening very weak, the market has bounced back on rumoured central bank intervention.

Hopes for further covered bond issuance have been dashed by peripheral volatility centring around Italy and poor US employment figures, which have weakened market sentiment across asset classes. Prospective issuers are electing to wait, and with holidays in core Europe fast approaching, benchmark supply appears unlikely.

Covered bond research analyst Ralf Burmeister, who is currently on paternity leave with Landesbank Baden-Württemberg, is due to switch to the buy-side and will start his new role in September. His decision to leave LBBW’s covered bond research team follows the departures of former colleagues, Jan King and Florian Eichert.

Though the covered bond market remained quiet on Thursday, syndicate officials stressed it had not yet closed for summer. Investors still have cash to put to work, and there is at least one trade expected next week. Negative rating action has damaged market sentiment, however, and closed the window for some peripheral names. Prospective issuers face a forbidding market and increased premiums should they decided to issue.

Most German covered bond investors prefer maturities of five years or less, while liquidity and ratings remain important to them, a new DZ Bank survey has revealed.

Most German covered bond investors prefer maturities of five years or less, while liquidity and ratings remain important to them, a new DZ Bank survey has revealed.

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.

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.

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.

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.