The repercussions of a Moody’s downgrade of Portuguese sovereign debt from A1 to A3 appeared to be minimal today (Wednesday) as Crédit Mutuel-CIC and Caisse de Refinancement de l’Habitat launched taps, and secondary spreads held steady.

Leads Natixis and Nomura were getting ready to close books on the February 2014 CM-CIC Covered Bonds increase as The Covered Bond Report was going to press, after books were opened at 1100 CET, with a Eu300m tap likely given that demand was just over that level. The deal will be priced in line with 47bp over mid-swaps guidance – the issue was first launched on 2 February at 50bp over mid-swaps.

A syndicate banker at one of the leads said it was a “nice, safe, defensive trade”.

CM-CIC last came to market last Tuesday (8 March) with a 10 year trade and CRH is adding further long dated supply today with a tap of a 2021 issue at 65bp over mid-swaps. Leads BNP Paribas, HSBC, Natixis and RBS had built a book of more than Eu500m by around 1330 CET.

“These deals show that investors are comfortable with this kind of credit, with French covered bonds,” said a banker at one of the leads. “Spreads are firm, and these taps allow us to fill demand that cannot be met in the secondary market, so we are managing to find demand from real money accounts.”

Some market participants were surprised at the stability of the market today after the volatility that resulted from the Japanese natural disasters – although the Nikkei 225 rose 5.68% today. Moody’s downgrade of Portugal was another potential obstacle for the market to overcome.

Caixa Geral de Depósitos

“We were just slightly amazed,” said a covered bond syndicate banker, “SovX was around 180/182 and we’re at 175/177, and Portugal now is 500/510 – unchanged compared to yesterday. So no great effect for the time being.”

Moody’s warned in December that if the senior unsecured long term ratings of Caixa Geral de Depósitos or Banco Espiríto Santo were downgraded by more than one notch then the mortgage covered bonds of each bank would be downgraded by one notch.

Frank Will, head of covered bond and frequent borrower strategy at RBS, said today: “We expect that the Aa2 covered bond rating of BES will be confirmed as we expect only a one notch issuer downgrade (unless the standalone rating of BES is downgraded as well).

“With regard to mortgage covered bonds issued by Caixa Geral de Depósitos,” he added, “we expect a one notch downgrade of the Aa1 covered bond rating as we view a two notch issuer downgrade as likely (unless the standalone rating of CGD is downgraded by a few notches as well).”

Last Friday Fitch affirmed the triple-A rating of Caixa Geral de Depósitos’ mortgage covered bonds and removed its Rating Watch Negative.

Berlin-Hannoversche Hypothekenbank achieved full subscription for a Eu1bn September 2014 mortgage Pfandbrief launched in the midst of yesterday’s volatility and achieve pricing in the middle of the 10bp over mid-swaps area guidance. More than 50 accounts participated in Berlin Hyp’s Aa1/AA+ issue.

Banks were allocated 91% of the paper, funds and asset managers 8%, and central banks 1%. Germany took 71%, the UK/Ireland 13%, France 9%, the Benelux 5%, and Austria 2%.

DZ, HSBC, JP Morgan, Landesbank Berlin and UniCredit were joint bookrunners.