Covered Bonds
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The covered bond has at long last reached the promised land, otherwise known as the US investor base. But the product has a long way to go before it achieves the same level of acceptance in the US that it has in Europe.
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The jumbo covered bond market finally made good this week on the promise it has offered all year. New issuance approached Eu10bn, US distribution continued to grow, and total output for the year overtook 2006’s record-breaking run rate.
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Caixa Geral de Depósitos will next week launch its second issue of obrigações hipotecárias, a five year deal via BNP Paribas, CaixaBI, Citigroup and UniCredit that is likely to be at least Eu2bn.
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The UK Treasury is expected to release draft covered bond legislation in the coming days. Market participants who have seen the consultation document say it proposes a much looser framework than those in other European countries.
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WestLB overcame the volatile market and rising yields to sell a Eu1bn 10 year public sector Pfandbrief this week, with much of its success due to strong Asian demand.
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Bank of America completed the importing of covered bonds to the US this week by becoming the first US issuer to sell a dollar deal.
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Banco Comercial Português (Millennium BCP) sold its first Portuguese covered bond this week, a Eu1.5bn 10 year issue of obrigações hipotecárias.
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La Caixa priced its Eu2.5bn 12 year cédulas hipotecarias and Banco Bilbao Vizcaya Argentaria its Eu1.5bn seven year cédulas territoriales at the wide end of price talk last Friday.
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HBOS confirmed the recent trend of slack demand for paper beyond 10 years this week, when demand for a 10 year tranche of its new covered bond issue outnumbered that for its 15 year piece.
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The dollar covered bond market finally seems to be about to fulfil the promise it showed in the transactions for HBOS and Depfa in February and March, respectively, that achieved strong US distribution with several new issues in the pipeline targeting investors in the US.
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OP Mortgage Bank showed that investors’ enthusiasm for new names remains high by generating Eu3bn of demand for its debut Eu1bn five year issue this week in just a couple of hours.
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Speculation that Bank of America could launch the first dollar covered bond from a US issuer is growing following reports that the bank has been discussing its programme with US investors.