Covered Bonds

UBS attracted $3bn in orders for its latest dollar trade, highlighting the depth of demand for the right European name. Swiss spreads are still cheap by historical standards and US buyers still wary of European supply, but dollar issuance from a strong eurozone name was a possibility, said syndicate bankers.

Standard and Poor’s brutal six notch downgrade of the Depfa ACS public sector backed covered bonds, from double A to triple B, matches the severity of downgrades that have been seen in several Spanish multi-Cédulas deals. But unlike those deals, this deal was issued by the Irish entity of a German parent bank.

After months of being forced to pay chunky new issue premiums in fleeting funding windows, issuers suddenly find themselves with a captive market. Building record order books and attracting hundreds of investors has become commonplace, as buyers old and new flock to covered bonds.

Dollar issuance continued its record breaking run on Tuesday, as UBS launched its second benchmark of 2012 in that currency. Sterling and dollars have had record first quarters, though euro supply remains subdued.

Covered bond spreads stabilised on Monday and bids have gingerly returned after last week’s sell-off. Turnover has been relatively low but spreads in core markets have renewed their tightening trend – though peripheral markets are lagging. In the primary market, the newly restructured HSH Nordbank is on the road until Wednesday and may thereafter decide to bring a €500m Pfandbrief, subject to market conditions.

The Cover has updated it global map of the covered bond market to reflect all recent developments by country, such as the emergence of the antipodean markets and the latest legal developments. Each country image links to key data metrics, and for the first time, news stories that are specific to the region.

Hopes that the US covered bond bill would be passed as soon as this year were dashed last week after it emerged that the US Senate approved the Jumpstart Our Business Startups Act – but crucially without an amendment that included the covered bond bill.

Ignoring market wobbles and a hint of unease around the future of Spain and Portugal, FIG borrowers had their eyes on the long game this week. They have been careful not to lock in large amounts of funding at what could become expensive levels, giving rise to the impression that the softer tone is a short term technical correction.

Investor appetite for Lloyds, the UK bank, appears to know no bounds. After issuing an ABS CLO and a dollar denominated senior unsecured deal this week, the borrower came back for its third public covered bond deal and it second ultra-long dated sterling deal of the year.

WL Bank priced its first deal since May last year and the first 10 year Pfandbrief of the year. Despite coming at a tight spread, relative to other covered bond sectors, it sold out within an hour and was heavily oversubscribed.

Investor appetite for Lloyds, the UK bank, appears to know no bounds. After issuing an ABS CLO and a dollar denominated senior unsecured deal this week, the borrower came back for its third public covered bond deal and it second ultra-long dated sterling deal of the year.

Waning euro primary covered bond issuance has been counterbalanced by a pick-up in overseas markets with Bank of Nova Scotia and Swedbank pricing dollar benchmarks and Australia and New Zealand Bank pricing its inaugural Aussie dollar benchmark at the end of last week.