Italy

Moody's on Thursday revealed its updated approach to analysing set-off risk in Italian structured finance and covered bonds transactions and said that there will be no rating actions following the implementation of its revised methodology.

Bank Austria priced its first Eu1bn deal on Wednesday. Westpac New Zealand is expected to launch its first euro benchmark covered bond in the near future and Abbey National is due to finish roadshowing on Friday for its inaugural sterling issue.

UBI Banca priced a Eu750m no grow benchmark well inside an initial price whisper yesterday (Thursday). Strong demand for the five year obbligazioni banca garantite took leads by surprise.

UniCredit SpA yesterday (Tuesday) sold a Eu1.25bn 12 year benchmark off the back of a Eu4.6bn orderbook, the largest ever for an Italian issuer. Bolstered by the pull of a maturity which is rare and increasingly favoured by the regulatory environment, the transaction’s reception was, in the words of one syndicate official, “overwhelming”.

The primary market picked up pace sharply today with a slew of rumoured deals all surfacing at once to take advantage of the continued bid at the long end of the curve – thanks to a rise in underlying yields and receding sovereign risk concerns. By mid morning three benchmark transactions had built combined order books of about Eu10bn. Lloyds TSB probably takes centre stage for its extraordinarily long duration and, at £2.5bn, its immense order book.

After a slow Wednesday, the European primary market aggressively picked up pace on Thursday with a range of seven deals from six jurisdictions was announced. Many have gone live and all appear to have been readily digested –in large part reflecting the constructive underlying tone to credit markets.

The primary market for European bank issued covered bonds appears to be gently slowing with just one deal from France’s Dexia MA pricing yesterday and another from Germany’s Aareal closing books at midday. In contrast a number of transactions are in the works from Canadian and Australian banks across a range of currencies –inaugural deals from new issuers and several rumours of others.

Banco Popolare Societa Cooperativia launched a Eu700m three year obbligazioni bancarie garantite yesterday (Monday), following Intesa Sanpaolo’s successful reopening of the Italian covered bond market last week. Although the deal had all the hallmarks of success, there is an increasing concern that investors now have so much high yield choice from top-tier names that second tier institutions, like Popolare, risk being crowded out.

Leads could not afford to take any risks with the pricing of Intesa Sanpaolo’s Eu1.5bn 10-year last week and therefore opted, for what some believed, was an overly generous price. But with an eye on the long line of local issuers that plan to follow it, leads and the issuer had to price the deal responsibly –for the benefit of the Italian market as a whole.

After a busy close to last week, covered bond activity has followed through this week with Abbey, Dexia MA and Westpac announcing deals while active bookbuilding commenced on Abbey, Banco Populare and Bayern LB.

Intesa Sanpaolo launched a Eu1.5bn 10 year obbligazioni bancarie garantite today (Friday), the first Italian issue of the new year, and one of the most heavily oversubscribed deals of the last two weeks.

Following successful Spanish and Italian government bond auctions the primary covered bond market picked up pace today with three mandate announcements two of which are from peripheral European jurisdictions. And, while conditions hold out, there are likely to be a few more mandates in the wings.