Canada’s Caisse centrale Desjardins du Québec is eyeing tomorrow (Tuesday) for launch of its inaugural euro, legislative benchmark covered bond, according to a lead syndicate official, as March got off to a slow start amid escalating tensions between Russia and Ukraine.

The syndicate official described market conditions as “ugly” and said that the Caisse centrale Desjardins du Québec (CCDQ) and its leads are monitoring developments but that launching a deal tomorrow is still the target. CCDQ on Wednesday announced that it has mandated Barclays, BNP Paribas, Crédit Agricole and DZ Bank to lead manage a five year euro legislative covered bond, its first benchmark covered bond since February 2012 and its debut in euros and under Canada’s covered bond legislation.

Syndicate bankers said that market sentiment was weaker given Russia’s military intervention in the Ukraine, but that covered bonds were holding up well.

One said that he foresaw no adverse effect on covered bonds as a result of the situation in the Crimea, which he described as “contained”, but that issuers assessing the potential impact of the crisis will have contributed to a lack of issuance this morning.

“I’d be surprised if the situation between Russia and Ukraine resulted in even a single basis point shift in covered bonds,” he said.

Another syndicate banker said that the secondary market in covered bonds was showing the asset class to be relatively immune to the situation in Ukraine, noting that some Austrian covered bonds were better bid following an improvement in the rating outlook for Austrian government bonds, and that there was also some buying of peripheral covered bonds.

Syndicate officials said that the covered bond market is in a position to absorb deals despite tension over Ukraine. Indeed, “covered bonds are normally a net beneficiary of markets being softer”, said one.

Syndicate official are anticipating further Canadian supply soon. National Bank of Canada went on a short roadshow at the tail end of February, having last Wednesday announced that it mandated BNP Paribas, Commerzbank, NBC Financial Markets and RBS for investor update meetings. These finished on Friday.

Meanwhile, Norway’s Eika Boligkreditt, formerly Terra BoligKreditt, will finish a roadshow for a euro benchmark covered bond tomorrow (Tuesday). A syndicate official at one of the leads had last week said a deal could emerge soon thereafter. Deutsche Bank, LBBW, Natixis and Nordea have the mandate.

Any benchmark issuance this week may be “frontloaded” given a European Central Bank meeting on Thursday and US non-farm payrolls on Friday, noted a syndicate banker.

“For now everyone is quite comfortable sitting on their hands,” he said.

Year-to-date euro benchmark covered bond supply stands at Eu25bn, according to The Covered Bond Report data. Joost Beaumont, fixed income strategist at ABN Amro, characterised February as “rather quiet”, with Eu5bn of issuance compared with Eu19.5bn in January.

He put February redemptions at Eu19.4bn, bringing negative net supply to just over Eu13bn year-to-date.

Looking ahead to March, negative net supply is likely to increase if the month follows the same trend set last year, in which there was only Eu4.5bn of issuance, with Beaumont seeing Eu9.9bn of euro benchmark redemptions this month.

Photo: Voice of America/Wikimedia Commons