Italy

After a string of lacklustre covered bonds, the primary market found its mojo on Wednesday as Cassa di Risparmio di Parma e Piacenza (Cariparma) issued a larger and longer Obbligazioni Bancarie Garantite than its closest comparable. Despite a weak secondary market, the issuer was able to attract a book that was driven by private sector demand for its first public deal, because pricing was fair and was defined from the start of the bookbuild.

Cassa di Risparmio di Parma e Piacenza (Cariparma) has mandated leads for its inaugural Obbligazioni Bancarie Garantite, which is set to launch tomorrow following the roadshow which was finalised on Monday.

With a pall of misery hanging over the covered bond market, Cariparma’s debut covered bond, which could be launched next week, could be the final primary issue of the year.

UniCredit Italy has revitalised hopes for the conditional pass through (CPT) covered bond structure which was pioneered by NIBC over a year ago and was at risk of being ignored. The programme lowers asset encumbrance, improves access to funding and can be used to fund a broader range of mortgage assets with full preferential regulatory treatment. It should send a strong signal to other issuers across Europe, but especially those in Spain where an overhaul of the legal framework is on the table.

The European Central Bank's covered bond purchase programme (CBPP3) turned relative value upside down this week, with a French deal pricing inside a similar Swedish offering, among a crop of four new issues.

For the first time the European Central Bank waded into the primary market to buy covered bonds for its third purchase programme (CBPP3) this week, as eurozone issuers from the currency bloc’s core and periphery returned after a long hiatus. The central bank’s buying may not be so good for core issuers but the evidence so far suggests peripheral names who have been locked out are about to bask in its largesse.

The European Central Bank’s covered bond purchase programme entered a new phase this week as eurozone issuance enabled it to buy the primary market, rather than relying on secondary where supply is drying up. Its buying is good news for peripheral banks but may cause investors to desert the core.

Credito Emiliano became the second issuer to take advantage of the European Central Bank’s (ECB) buying programme, launching a covered bond on Thursday. The deal led to a repricing of the issuer's curve in a move that could spur other peripheral names to return to the market.

Covered bond yields fell on Tuesday as Bunds rallied following a larger than expected fall in the ZEW business sentiment index and lower than expected inflation data. The European Central Bank (ECB) could be poised to commence buying on Wednesday after its scheduled meeting. Since the ECB is likely to be targeting the spread to government bonds, Pfandbriefe are likely to be on the bank’s shopping list, as they look more attractive than peripheral bonds versus their government bonds.

European covered bonds have been relatively stable in the secondary market this week, though second tier banks in the periphery widened marginally on light selling on Friday, with Banca Monte dei Paschi di Siena leading the way after posting a higher than expected loss. The move is likely to be short-lived provided the geopolitical backdrop does not worsen.

Banca Popolare di Sondrio surprised the market on Tuesday, announcing and pricing its inaugural Obbligazioni Bancarie Garantite via sole lead BNP Paribas. The newcomer which is a slightly larger institution than its more established covered bond peer, Credito Emiliano, offered a deal with a substantial spread pick up enticing a broad swathe of investors. (This article has one comment)

Bankers expect more bad news to come out of Portugal and the correction being seen in peripheral covered bonds may therefore have further to go. But this bad news fundamentally does not change the positive longer term picture for the rest of peripheral Europe. A technical retracement had been long overdue and will provide a rare buying opportunity for real money investors and banks looking to cover their shorts.