UK

German, French and UK issuers launched trades on Tuesday as indices tightened and stock markets rose on hopes that a solution to the eurozone debt crisis had been outlined over the weekend.

Santander UK’s Holmes 2011-3 RMBS picked up $2bn of demand in the ‘A2’ dollar tranche, despite challenging conditions in wider markets continuing.

Crédit Mutuel-CIC Home Loan SFH kept the euro market alive on Tuesday with an increase of an outstanding 10 year trade. The €200m tap is the sum total of primary issuance in the last week, though Canadian Imperial Bank of Commerce proved the dollar segment’s resilience to market volatility by taking supply over the same period to $7bn.

Santander UK has launched Holmes 2011-3, ending a two month drought in the public European ABS market. Market participants had been begging for a large multi-currency master trust deal to kick off a revived market, and Holmes fits the bill.

UK bank shares fell on Monday after the Independent Commission on Banking recommended ring-fencing the retail operations of UK banks in its final report. Mortgage lending will be permitted within the ring-fence, as will wholesale funding. However, the ICB proposes a wholesale funding limit, which could address concern that if mortgage backed assets such as covered bonds are included in the ring-fence, asset encumbrance would reach unacceptable levels.

Prospective issuers stayed out of the European covered bond market on Thursday, ahead of the afternoon ECB interest rate announcement and press conference in Frankfurt. A deal is highly unlikely on Friday, which means the week will probably end without any European supply at all. Looking ahead, Norway’s Terra Boligkreditt finished its roadshow on Wednesday and may be the prime candidate to resume euro supply early next week — as long as weekend headlines don’t spook markets.

Market participants were not swayed by a moderate rally in sovereign CDS and senior financials on Wednesday morning, preferring to hold out for a more stable backdrop. But with an ECB meeting in Frankfurt on Thursday and the Euromoney covered bond conference and ECBC plenary taking place on 14-15 September, opportunities for issuance might be limited to early next week.

After €5.75bn of covered bond deals on Tuesday, including a €2bn three year offering from compatriot Barclays, RBS took advantage of the continued window for issuance on Wednesday morning with its own €2bn deal in the same tenor. Investors again showed demand for UK paper, allowing the issuer to price several basis points inside the wide end of guidance.

French, UK, Swedish and Austrian issuers launched deals across the covered bond curve on Tuesday, as the market backdrop continued to improve. Caisse de Refinancement de l'Habitat and Austria’s Erste tapped the longer end (see separate story), while Barclays Capital and Swedbank launched three and four year trades respectively.

Analysts warned about the outlook for UK banks this week, saying their cost of funding will rise if ring-fencing proposals are implemented.

Purchases of government debt by the ECB stalled a rise in Spain’s borrowing costs and resulted in its sovereign CDS dropping from over 400bp to 350bp at the end of last week. On Monday morning Spanish and Italian government bonds tightened slightly against Bunds, though Spain’s CDS widened out to 375bp, with market participants concerned over the lack of a long term solution to the sovereign debt crisis.

After a week of severe fluctuations in all market segments, traders said Monday morning was the quietest day in weeks. Market participants are hoping for a modicum of stability to improve the chances of primary supply at the end of the month and several issuers from core jurisdictions are finalising roadshows in order to come to market, syndicate bankers said. But if new issue premiums are at the top end of expectations, they added, it will reshape the secondary curve — and this may deter some names from returning.