The Netherlands

The European covered bond market is stabilising on Friday, with buyers reported in French and Scandinavian names. But the Spanish market remains shaky, and though selective bids returned the macro sovereign backdrop deteriorated after Thursday's brief impovement.

Spain’s Bankinter and Bankia are expected to launch short dated trades later this week, after the primary market paused for breath on Monday. Cash rich investors with an appetite for risk should ensure they get a strong reception, but negative rating action could yet cause them to hold off.

Issuers could hardly hope for a better backdrop to bring benchmark deals. Bond yields are falling and investors are looking to put cash to work across a swathe of asset classes to capitalise on the rally, as seen most emphatically in the senior unsecured market this week. Yet Norway’s Sparebank Vest Boligkreditt remains the only obvious candidate for a deal next week.

ABN Amro and Credit Suisse maintained primary market momentum on Wednesday, adding another €2.25bn of supply. ABN Amro paid above initial price thoughts to ensure smooth execution of its 10 year, while Credit Suisse was able to price its five year inside UBS’s offering last week — making it the tightest five year euro print of the year.

Four covered bond issuers collectively raised over €5bn of new funding on Tuesday across two currencies and three tenors. Total issuance this week exceeds €8bn equivalent and on Wednesday a further two are lining up with euro benchmarks. This suggests borrowers will have raised at least €25bn equivalent this year by the close of play on Wednesday.

Though the first day of activity in 2012 brought fewer trades than in 2011, the number of accounts that participated in the deals was up on last year. Almost 400 buyers participated in Tuesday’s salvo, with Germany taking over half of primary allocation.

ING was among the first wave of issuers to restart supply on Tuesday, launching the first Dutch benchmark in almost six months.

The ECB’s unprecedented refinancing operation may hit covered bond supply at the short-end of the curve, but medium and long-term issuance — the mainstay of the covered bond market — could benefit from greater confidence in banks’ health, bankers told The Cover.

Singled out for special treatment by European regulatory initiatives, covered bonds were the funding tool of choice for the region’s banks in 2011. But an escalating Eurozone crisis meant the record-breaking market entered 2012 relying on state support.

Euro benchmark supply will drop in 2012, covered bond analysts predict, despite the product having become the cornerstone of bank funding. Rarely have analysts’ expectations diverged so far, with issuance estimates ranging from €120bn-€190bn.

SNS Bank has asked DZ Bank, Natixis, Rabobank and RBS to organise a series of investor meetings that will start on December 12.

Stress in bank funding markets, exposure to troubled eurozone sovereign bond markets and moves away from implicit government support have affected the creditworthiness of many global banks. But Standard & Poor’s approach to covered bond ratings means they should remain resilient compared to other agencies.