UK

The UK covered bond market is set for a long awaited deal after Clydesdale Bank said it would roadshow its inaugural euro denominated deal from June 6.

Scandanvian borrowers have joined their French and German core colleagues to take advantage of a market highly receptive to quality issuance. SpareBank 1 Boligkredit tapped the dollar space on Tuesday, while Nordea Bank Finland priced a well oversubscribed three year euro trade on Thursday. Aktia real estate mortgage bank has mandated banks for a series of investor meetings beginning in early June.

Ratings agencies and covered bond analysts have still not reached a consensus over the most efficient way to mitigate against refinancing risk following a segregation event.

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.

Bayerische Landesbank began taking indications of interest for a benchmark public sector Pfandbrief, expected to be priced on Thursday, which could end the mysterious drought in the covered market.

Secondary market activity has been focused on Spain lately with end account selling noted in multi-cédulas and single names which, among others, have included BBVA. Though it’s technically possible for the issuer to bring a deal flat to the underlying government, some bankers think that the funding window may have passed, albeit temporarily.

Existing measures to prevent liquidity risk hamper borrowers’ use of covered bond funding, according to Barclays Capital research. Mechanisms in place to combat liquidity risk in an asset segregation event have not been appropriate to recent events, it said, and can restrict issuers’ use of covered bond funding during critical periods.

Fitch has explained how its new covered bonds counterparty criteria, published in March, might affect covered bond ratings of UK banks. The agency sees temporary liquidity shortfalls as the highest risk to covered bond programmes, so UK banks will have to show a commitment to improve their liquidity reserves, or risk a ratings downgrade.

Secondary trading has paused for breath lately, but there are still good pockets of liquidity and interest – specifically for French, UK and to a lesser extent Dutch and Scandinavian deals. The primary market could be due another slow week though a French deal is highly likely, with Société Générale tipped as a probable candidate. UK issuers are looking at the dollar market but there is speculation that one is looking at sterling.

The drive for a minimum covered bond transparency standard looks set to continue for a while yet. After the European Covered Bond Council met the ECB in Frankfurt on April 26, the technical issues working group is due to meet on May 27. They will present a refined list to the ECBC’s steering committee which is looking for a middle way that appeases investors, the ECB and issuers. For the UK market, collateral transparency is unlikely to be a problem, but misguided views on what happens after a UK issuer’s insolvency illustrates opacity is still an issue

Primary market activity was confined to a lone mandate from Dexia Municipal Agency on Monday, though issuers across core Europe are watching the market closely, said syndicate officials.

April was the first month without record issuance, and the first in which total supply was less than that of the previous year. Deutsche Bank analysts report that year to date supply of euro benchmarks remains at a clear historical high however, with public issuance from the UK also at record levels. Borrowers from Norway and Spain, among others, have been suggested as likely candidates for next week, and though no mandates have been announced, syndicate officials said the market remains open for peripheral and core names alike.