Italy

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.

A new world order in debt markets could soon be ushered in with the first covered bond new issue to be priced through domestic government bonds, investors and bankers were forecasting this week.

Moody’s placed Banca Popolare di Milano’s covered bonds on review for possible downgrade on Monday, because of a corresponding rating action taken on the bank itself.

Amid growing concern over peripheral euro sovereigns, covered bond analysts are focusing on the exposure to the troubled periphery of public sector cover pools in core jurisdictions.

Banque Populaire Caisse d’Epargne restarted benchmark issuance on Tuesday, launching the first euro denominated Obligations á l’Habitat. The inaugural Eu2bn deal was well received by a cash rich investor base that has had to make do with secondary market purchases since April 14. Though there was no further primary issuance, UniCredit Bank Austria and Sweden’s Stadshypotek mandated leads for three and five year deals respectively, to be launched in the near future.

After two weeks without benchmark issuance market participants are looking past the UK royal wedding and May Day holiday to a resumption of primary market activity on Tuesday. Syndicate officials were modest in their expectations however as, with peripheral markets effectively closed and some core names in blackout, prospective issuance from for core jurisdictions appears sparse.

Secondary trading has picked up pace in light of limited primary issuance. An attractive rates environment has ensured continued demand for long dated French paper, while selling has increased in peripheral covered bonds now flat to the government curve.

French, UK and German names were active on Wednesday, continuing the shift away from southern jurisdictions. Lloyds launched its second euro deal of the year and Nordea became the latest borrower to tap the dollar market. UniCredit ensured peripheral Europe was represented, mandating for a Eu500m tap of an outstanding 2017 trade.