Italy

Banca Popolare di Milano’s covered bonds face a ratings cut after Moody's downgraded the bank on Thursday. Although BPM’s bonds will remain investment grade, more and more covered bonds are slipping into triple-B territory, said analysts, though structural enhancements could help stop the slide.

Sparkasse KölnBonn is set to announce a deal in the belly of the curve, somewhere in the region of five years, bankers told The Cover on Monday. Other issuers, possibly from Europe’s periphery, are also considering deals, said bankers, after further strong performance in the secondary market.

Covered bond issuers decided against bringing benchmark bonds on Friday despite a better backdrop, but there are several potential deals in the pipeline and stronger sentiment should encourage issuers looking to come next week, said bankers.

HypoVereinsbank (HVB) closed a €500m seven year mortgage Pfandbrief on Monday after opting for a more generous starting point than those on recent German deals. It was rewarded with a far larger orderbook, which allowed it to price the bond well inside initial price thoughts.

Covered bond syndicate officials are predicting as many as five deals will be launched next week following a wave of successful core transactions.

Since UniCredit’s groundbreaking covered bond deal last year, a plethora of issuers have priced inside their sovereign. This new financial order has led to a re-examination of how covered bonds are priced and whether sovereign risk has much bearing on covered spreads anymore.

Italian covered bond spreads held firm following a round of Fitch downgrades, which came after the rating agency tightened the link between issuer and covered bond ratings in the country.

Core and peripheral borrowers are waiting for a better market before bringing benchmark covered bonds. Safe-haven names are traditionally first to take advantage of returning stability. But southern European borrowers, which offer higher yields, juicers spreads and are less flexible over pricing, will find execution easier, said bankers.

Trading in Spanish and Italian covered bonds was relatively stable against asset swaps on Monday, while they tightened versus their domestic sovereign bonds, following the news that Cyprus faces a bail-out from the European Union.

Italian covered bonds have traded steadily following Fitch’s downgrade of Italy late last week. Despite the sovereign downgrade, Fitch affirmed the AAA rating for the Pfandbriefe of UniCredit’s German subsidiary on Monday.

The secondary covered bond market was busy on Monday, with dealers reporting large trades in multi-Cédulas, which have held steady, and better buying of Italian covered bonds, which are tightening.

Crédit Agricole braved an uncertain market on Thursday to launch its first Obligations à l’Habitat of the year. It was rewarded for its courage with the largest covered bond print in over a month and a final spread inside its secondary curve, proving the primary window remains wide open for core issuance.