S&P upgraded the covered bonds of AIB Mortgage Bank from AA- to AA yesterday (Thursday) after raising its long term rating on the issuer’s parent, Allied Irish Banks, on Monday, with the action coming only two weeks after a previous upgrade of the programme by the rating agency.

Standard & Poor’s on Monday upgraded Allied Irish Banks from BB to BB+, citing its view that industry risks have decreased for Irish banks and that that improvements in banking system profitability and a lower risk appetite will prove enduring. The rating of AIB’s covered bonds was subsequently raised by one notch from AA- to AA, on stable outlook.

The new rating action follows an earlier upgrade of the covered bonds by S&P from A+ to AA-, on 10 July. The one notch upgrade had been triggered by the rating agency applying its criteria for rating Irish RMBS and taking into account a voluntary public overcollateralisation (OC) commitment made by the issuer on 9 July to hold OC of at least 44%.

Despite recent favourable rating developments for Irish covered bonds, deals from the jurisdiction continue to underperform, according to Maureen Schuller, head of covered bond strategy at ING.

“The Markit iBoxx Euro Irish Covered index closed yesterday at 19bp, which is even wider than the Markit iBoxx Euro Italian Covered index at 15bp,” she said. “In our view, Irish covered bonds offer value at the moment from an issuer ratings perspective.

“Due to their relatively flat curve profile, particularly the front end of the Irish covered bond curves looks attractive versus other jurisdictions.”