Covered Bonds

Australia has been the covered bond growth engine this year, adding $44bn to its market. With no redemptions due in 2013, it is set to grow faster than any other covered bond market again next year, though not at quite the same pace, bank analysts predict.

Canada Mortgage Housing Corp (CMHC) has published the final details of Canada’s covered bond framework, allowing issuers to begin building new programmes for a return to market in 2013. Though uninsured mortgages are prohibited, in-depth disclosure requirements should go down well with investors and stand borrowers looking at SEC and 3(a)(2) issuance in good stead.

The Nordic covered bond market grew by €20bn this year while most other European jurisdictions were taking supply out of the market. But net supply is expected to halve in 2013 as even Norway’s surge in issuance subsides.

Time is running out for borrowers yet to make programme changes in advance of Standard & Poor’s new counterparty criteria, which comes into force in early January. The rating agency has placed another six programmes on review for downgrade, and warned there could be others.

Gross euro denominated benchmark issuance should grow slightly in 2013, but with redemptions set to increase sharply, net supply will be negative, said analysts as they looked ahead to the New Year. That could mean that spreads will continue to tighten.

This year’s December refinancing auctions in Denmark again produced historically low cash mortgage loan rates for borrowers with interest-reset loans.

Westpac issued its second US dollar bond of 2012 — the fifth such deal from Australian banks this year. Following a US roadshow last week, the deal was heavily oversubscribed and priced on Tuesday at less than half the spread of the borrower’s first US deal, launched in November 2011.

Gross euro denominated benchmark issuance should grow slightly in 2013, but with redemptions set to increase sharply, net supply will be negative, said analysts as they looked ahead to the New Year. That could mean that spreads will continue to tighten.

European Commission proposals to change bank resolution arrangements could hit covered bondholder rights. Covered bonds as a source of secured bank funding must be safeguarded, Barclays said in research released on Wednesday, entitled Bank resolution and covered bonds — cutting up the safety net.

There will be more covered bond downgrades in 2013, Moody’s said in its global covered bond outlook, but the rate of downgrades should start to slow.

Westpac has brought its second US dollar bond of 2012 — the fifth such deal from Australian banks this year. Following a US roadshow last week, it was heavily oversubscribed and priced on Tuesday at less than half the spread of its first US deal, launched in November 2011.

The Pfandbrief market is expected to shrink by up to €27bn next year as the deleveraging of public sector businesses continues apace. Opportunistic deals should dominate in 2013, and German issuers will again look to foreign markets such as sterling and dollars.