Italy

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.

Italy’s Mediobanca decided not to press ahead with a covered bond debut on Wednesday as the Republic of Italy launched a seven year BTP on the same day. Instead the issuer is expected to launch a deal targeting the mid to long end of the curve on Thursday, when it is likely to be joined by Commerzbank, which has mandated for a seven year mortgage Pfandbrief.

The covered bond market continued to trade on a stable footing on Monday, even though the US could technically default in less than two weeks. Italy’s UBI Banca successfully priced a €1.25bn deal on a comfortably oversubscribed and granular book, at a very competitive spread.

UBI Banca is set to make a return to the covered bond market for the first time in two and a half years. After mandating leads for a benchmark euro deal on Friday, books are expected to open on Monday

Five issuers from France, Germany, Ireland, Austria and Italy have joined the covered bond pipeline. And, with the European Central Bank ready to consider further extraordinary liquidity measures, the conducive technical backdrop looks set to remain. Despite this, the longer term supply outlook remains uncertain and overall issuance, which is at the decade’s low, is not about to improve.

Banca Popolare Dell'Emilia Romagna Società Cooperativa, has mandated leads for a covered bond roadshow in the wake of the Federal Reserve’s surprise decision not to taper its bond purchasing programme. The Fed’s unexpected move should support spreads and issuance, especially for borrowers like the Italian bank that offer high yields, said bankers.