Italy

Issuers are waiting for some better news out of Greece before deciding whether to press on with transactions, despite most receiving strong interest during roadshows. After selling in the secondary market on Thursday, sovereign spreads on Friday tightened on rumours of an aid package for Greece. But with market sentiment yo-yoing from one day to the next, any window for issuance before the summer lull is likely to be narrow, and perhaps too risky for first time euro borrowers such as ANZ Bank.

While Finland dominated the primary market on Tuesday, pressure on peripheral names was still the story in the secondary. Italian borrowers are lining up, with a trio of issuers said to be monitoring the market, though a difficult backdrop may mean postponement until next week.

Demand from insurance companies and pension funds for covered bonds has increased this year, according to Barclays research, while interest from central banks and asset managers has fallen. Germany and Austria are the only regions where overall investor interest for covered bonds has decreased noticeably, though in some jurisdictions investors have participated far less in issuance from certain countries.

Germany’s Aareal Bank kicked off covered issuance this week with a triple-A Pfandbrief on Tuesday, while UniCredit mandated banks for a seven year OBG which was launched the same day.

UniCredit launched the latest deal from the fastest growing euro segment in the covered bond world on Tuesday, a Eu1bn no-grow benchmark which in keeping with other Italian deals this year was highly oversubscribed.

After the activity and drama of the first part of the week, Ascension Day holidays across most of Europe have lent a quiet tone to the market and a more sedate close is anticipated. But with as many as five deals mandated and a few others rumoured, the pace is likely to pick up next week.

UniCredit’s German entity, HVB, on Tuesday issued its first benchmark Pfandbrief since January. The Eu1bn five year deal benefitted from an enduring safe haven bid and investors’ confidence that, despite its headquarters in a peripheral European country, it remains a German name with the advantages that status bestows.

German issuers, conspicuous by their absence from last week’s core paper jamboree, are back with a bang this week, after Deutsche Kreditbank, owned by Bayerische Landesbank, and UniCredit — came to market on Monday and Tuesday respectively. Domestic buyers did not let the banks down, putting in a solid bid.

Issuance from Italy, the fastest growing euro covered bond segment, has this year already exceed by almost 20% the total amount sold from that jurisdiction in 2010, according to Natixis analysts.

Standard & Poor’s placed Intesa Sanpaolo and three other Italian banks on rating watch negative on Tuesday, and affirmed Intesa’s A+/A-1 counterparty rating.

The eurozone sovereign debt crisis has tested the covered bond product like never before. Katie Llanos-Small examines how covered bonds from the periphery have performed during the crisis, and asks what might happen if a eurozone sovereign were to default.

The possibility of a covered bond issuer pricing a deal inside government debt, once considered highly improbable, is now conceivable, say Deutsche Bank and Barclays Capital.