UK

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.

The larger than expected Eu600m tap of Bankinter’s two year cédulas speaks to potential demand for tier two Spanish issuers. Though no firm rumours are in the market for peripheral issuance next week, bankers believe the moment is there – particularly given that a less certain growth outlook may potentially close the funding window for more challenged names.

Coventry Building Society has successfully priced its inaugural covered bond eight basis points inside where Yorkshire Building Society was able to issue only a few days earlier.

The asset backed security market showed signs of recapturing some of its old swagger this week, playing host to a wide range of transactions and preparing to take down the largest volumes since the onset of the credit crisis in 2007.

Abbey National Treasury Services has beaten Coventry Building Society to be the first to follow a highly successful seven year sterling issue from Yorkshire Building Society on Tuesday. At 10 years in maturity, Abbey’s new £1.25bn deal would, until recently, have been at the shortest end of the sterling curve.

Barclays Bank convinced more than 120 accounts to participate in a Eu1.5bn five year print on Wednesday, which leads said could have been larger, given the deal was almost 2.5 times oversubscribed.

Following positive sell-side reaction to the joint review and consultation on UK covered bond regulation by the Financial Services Authority and HM Treasury, buy-side reaction has been more measured. Investors say transparency risks being diluted over time and the current legal status of covered bonds lacks clarity. But, combined with the European investor initiative, which may have repercussions on the ECB collateral framework, it is clear that all authorities are working in favour of investors and this can only be good.

Moody’s has assigned a triple-A rating to Coventry Building Society’s £1.5bn Series 1 and £500m Series 2 covered bonds. The high amount of interest-only loans, loans to self employed borrowers and those with no income verification is offset against conservative average loan to values and high overcollateralisation