Italy

Credito Emiliano priced a covered bond at a double digit margin on Tuesday, the first time in four years that second tier Italian bank has done so. The scale of demand and level of funding illustrated that spreads between peripheral and core markets are reverting to historical norms, and that Spanish borrowers have been shrewd to postpone issuance plans.

Belgium’s KBC Bank and Italy’s Credito Emiliano have added their names to Deutsche Kreditbank and mandated joint leads for deals that should all be launched on Tuesday. Despite the high number of covered bond transactions that will compete for investors’ attention at the same time, the small deal sizes and their diversified appeal should ensure that the trio enjoy a solid reception.

Banco Popular Español was downgraded by Standard & Poor’s on Thursday and, though general market sentiment was clearly more risk averse, with Bonos underperforming Bunds, the borrower’s Cédulas was unchanged after recently being better bid. Meanwhile, Italian covered bonds remained well supported, even as renewed Italian political instability caused BTPs to sell off.

Cash held in segregated accounts for the benefit of Italian covered bondholders, could be bailed in, in the event of an issuer and servicer default, Fitch said on Tuesday, following recent changes to Italy’s covered bond and securitisation law.

There was strong secondary market interest in the long end of the peripheral market, and especially Italian bonds, on Thursday. In contrast, core covered bonds came under greater selling pressure, partly due to switching interest from Wednesday’s deals. The flows were counter-intuitive to the wider macro backdrop, where the flight to safety bid has resumed.

Intesa Sanpaolo brought forward a 12 year deal on Wednesday, after witnessing the extraordinary demand for UBI Banca’s 10 year. Intesa’s book was less spectacularly oversubscribed, but its long tenor should ensure a high proportion of quality interest, boding well for its performance.

The primary covered bond market sprang into life on Wednesday with four deals from Germany, France and Italy. Pride of place went to Unione di Banche Italiane, the only one to have publicly mandated a deal the previous day. It was oversubscribed about five times based on the unreconciled book and may have pushed Intesa Sanpaolo into bringing forward its own issuance plans (see other story).

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.