Italy

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.

After the flurry of four deals that priced yesterday afternoon (See separate comments), the market has gone into radio silence.

German 10-year Bunds are correcting slightly higher this (Friday) morning, but a long term trend of rising yields that has been in place since August remains intact. As a result, real money accounts are increasingly hitting their target returns –a driving factor behind a hugely upsized increase of a tap for Caisse de Refinancement de l’Habitat.

Benchmark covered bond supply in 2011 is likely to be close to 2010 volumes, according to covered bond analysts, with no analysis forecasting more than a Eu20bn rise or fall relative to 2010 levels.

Following a premature halt to new issuance this year, syndicate bankers expect the onset of 2011 to bring a rush of benchmark covered bond supply as issuers hasten to execute funding plans in anticipation of continued market volatility. A liquid buy-side should ensure that deals are readily absorbed - at least initially.

Rough market conditions and dwindling liquidity mean that few to no deals could be launched next week although some issuers are still monitoring the market, according to syndicate bankers.

The covered bond market could still be open for deals from high quality issuers and solid jurisdictions, according to syndicate bankers, despite wider market conditions quickly deteriorating yesterday (Monday) over fears that political turmoil in Ireland could derail implementation of a European Union and International Monetary Fund bailout package.

The pace of benchmark covered bond supply could step up a gear this week, with Credit Suisse eyeing the middle of the week for the launch of its inaugural issue, a Dutch bank said to be close to coming to market and others deciding on next steps after having finished roadshows last week. But another issuer has put primary market plans on hold until next year.