Italy

Bankinter on Thursday swiftly followed peripheral peer UniCredit’s success from the day before. The Spanish borrower launched a blow-out three year benchmark trade 20bp inside initial price thoughts, as traders struggled to keep up with a big spread rally in peripheral paper.

Investor sentiment towards Spain and Italy has improved since August, according to a Crédit Agricole survey. However, most buyers’ credit lines are unchanged, which means many still cannot take advantage of remarkable relative value.

Investors are cash-rich and covered bond spreads look set to remain fairly stable – ideal conditions for covered bond issuance. However, deal flow is set to remain quiet as most issuers are well funded, and those that could do deals are about to enter blackout period.

Norddeutsche Landesbank could open books on a debut dollar covered bond as early as Tuesday morning, said syndicate leads on Monday. But the outlook for a first sterling trade from Deutsche Pfandbriefbank is more uncertain.

Sampo Housing Loan Bank on Wednesday mandated for the sixth seven year covered bond benchmark of September, and should price the trade on Thursday. Despite a renewed appetite for risk in the wider market, covered bond supply remains consigned to safer names, but a successful auction for the Spanish sovereign could pave the way for further Cédulas.

Intesa Sanpaolo has become the second issuer to price a deal through its own government, following UniCredit’s historic trade in August.

After a six month absence Banco Sabadell returned to the covered bond market on Tuesday with a two year cédulas. Though it looks like the borrower will successfully raise its target €500m in line with guidance, bankers on the deal warned that the depth of demand for peripheral paper had become too thin to realistically consider another deal until after Wednesday’s German court ruling on the legality of the European Stability Mechanism.

Three European borrowers mandated covered bond deals on Monday, taking advantage of what could end up being only a brief funding window in the wake of the European Central Bank’s announcement last week that it would support peripheral sovereign debt markets.

Covered bond issuance is on hold while the European Central Bank’s meeting in Frankfurt commands all attention. ECB president Mario Draghi is expected to provide details of a sovereign bond purchase programme and peripheral sovereign spreads have already tightened in expectation. But analysts said investors fearing a disappointing programme could switch to into covered bonds — with Cédulas the most likely to benefit from such a shift.

Credito Emiliano has become the fifth Italian bank to set up a separate covered bond programme to access European Central Bank (ECB) repo funding. But bankers warn that these programmes could have a negative effect on issuers’ original public programmes, even though they help improve banks’ liquidity. This article has one comment.

After the drama and excitement of UniCredit pricing through BTPs, the European covered bond market has returned to normal — only to be outshone by senior unsecured, where three deals are on the way.

Intesa Sanpaolo was the most likely candidate to follow UniCredit’s groundbreaking €750m reopener, but could face an even higher spread, investors told The Cover on Wednesday. Italy also represents the only hope for peripheral supply in the short term, as Spain remains priced out of the primary.