Italy

Banca Carige’s covered bonds widened sharply in the secondary market on Thursday amid continued weakness among recent issues, and some selling of second tier peripheral credits.

UniCredit’s decision to issue a three year floating rate tranche in benchmark size was a response to the new regulatory environment and could pave the way for a new market sector, Waleed El Amir the bank’s head of long term funding, told The Cover on Thursday. The new format may help improve funding opportunities for other issuers, particularly in Europe’s periphery.

The Italian government is poised to amend the country’s covered bond law to allow issuers to use SME collateral for a new type of dual recourse bank bond or Obbligazioni Bancarie Collateralizzate. If structured with a soft bullet, the uplift above the issuer’s rating would be limited, Fitch said on Tuesday. However, bankers said the prospective bonds would be more likely to use a pass through structure.

Changes to Italy’s covered bond law improve the segregation of cover pool assets and are good for the market, according to Moody’s.

A successful €3bn share issue from Banca Monte dei Paschi de Siena early next year could bolster the bank’s underperforming covered bonds, RBS research said on Wednesday. It could also lift sentiment for the wider Italian covered bond market, helping other smaller Italian issuers such as Banca Carige, which is also looking to raise capital.

The transfer of mortgages to UBI’s cover pool increases collateral risk but is mitigated by high overcollateralization, which has increased by even more, Moody’s said on Monday.

Spanish covered bonds issued by tier two banks could fare better than their Italian equivalents, even though Italian spreads have been less volatile than Spanish ones this year, RBS said on Thursday.

Covered bond primary activity took off on Thursday after the US government voted to extend the debt ceiling deadline to February 7 next year. As many as four issuers from Italy, Hungary, New Zealand and Canada opened books for new benchmarks. But the star turn was Italy’s Banca Carige which, despite strong headwinds, attracted a resounding endorsement from investors for its first deal since March 2011.

Banca Carige has mandated leads for a potential euro-denominated covered bond (Obbligazioni Bancarie Garantite) benchmark transaction, which could be launched on Thursday just as the US debt ceiling deadline falls due.

Despite the close proximity of the US debt deadline on Thursday, the covered bond market was stable and well supported on Tuesday, said bankers, who are waiting for imminent deal mandates from Austria and Italy.

This week’s three Italian covered bond issues continued to outperform in secondary trading on Friday while the primary market paused for breath. Meanwhile, Moody’s has put Credito Emiliano’s mortgage covered bonds on review for downgrade, highlighting the benefits of smaller Italian banks coming to market before further rating moves.

Two issuers succeeded with covered bond debuts on Thursday. Mediobanca’s choice of a 10 year maturity for its inaugural deal was vindicated when it priced a €1bn benchmark comfortably inside guidance, while Commerzbank’s first foray into the mortgage Pfandbrief market enjoyed the smooth execution expected of a leading German bank.