Greece

The covered bond primary market exploded into life on Tuesday with new developments on as many as eight deals — of which four or even five, are expected to price during the day. The constructive primary market is largely due to an improvement in underlying market sentiment.

The eurozone sovereign debt crisis has tested the covered bond product like never before. Katie Llanos-Small examines how covered bonds from the periphery have performed during the crisis, and asks what might happen if a eurozone sovereign were to default.

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.

Moody’s took rating action on the covered bonds of three issuers on Monday, downgrading the deals issued by Santander Totta, and Caxia Geral de Depósitos, while placing those issued by Marfin Popular Bank on negative review.

A new world order in debt markets could soon be ushered in with the first covered bond new issue to be priced through domestic government bonds, investors and bankers were forecasting this week.

Amid growing concern over peripheral euro sovereigns, covered bond analysts are focusing on the exposure to the troubled periphery of public sector cover pools in core jurisdictions.

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.

All Portuguese benchmark deals now trade inside government bonds.

After two weeks without benchmark issuance market participants are looking past the UK royal wedding and May Day holiday to a resumption of primary market activity on Tuesday. Syndicate officials were modest in their expectations however as, with peripheral markets effectively closed and some core names in blackout, prospective issuance from for core jurisdictions appears sparse.

Fitch yesterday (Tuesday) downgraded covered bonds issued by the National Bank of Greece to BBB+ and removed them from negative review.

Moody’s expects negative rating actions on covered bonds to substantially outnumber any positive actions in the year ahead, due principally to weakness in the sovereign and banking sectors.

Fitch yesterday (Monday) downgraded the issuer ratings of five Greek banks from BBB- to BB+ and removed them from negative review, though the outlook on the long term ratings is negative.