Covered Bonds

The UK’s Financial Services Authority has released further guidance on additional areas of the Regulated Covered Bond regime, which sets out minimum expectations. Issuers and analysts welcomed the increased oversight but felt that, if the regulator had really wanted to convince international investors about the quality of UK covered bonds, it would have made them eligible to be held in bank’s liquidity buffers.

ING DiBa, Commonwealth Bank of Australia and Toronto Dominion all successfully got deals away in the past 48 hours as the credit backdrop started to soften on renewed concerns over Greece. The markets are likely to remain in limbo until next week when more clarity on Greece will be known.

Commonwealth Bank of Australia’s five year covered bond drew three times the number of investors as dollar debuts from its Australian peers Australia and New Zealand Banking Group and Westpac.

Toronto Dominion Bank raised $3bn of five year funding off a well subscribed book 6bp tighter than a recent trade from Canadian peer Caisse Centrale Desjardins du Quebec.

The global covered bond market continues to look strong, with a trio of issuers collectively raising the equivalent of more than €4.5bn, on the back of more than €9bn in demand across two currencies. But whether the market’s euphoria can hold out until the end of this week, however, remains to be seen as doubts are starting to creep back in with Thursday’s Greek liability management cut off date fast approaching.

Cajamar Caja Rural has become the latest Spanish bank to try to buy back debt, tendering for up to €300m of ABS and covered bonds.

ING DiBa was assured of a very strong response to its Pfandbrief, given that the market has had just €1.5bn of supply in 2012 year, which is billions below scheduled redemptions. Its deal on Tuesday was the fourth €500m sized benchmark from the region this year. ING is well regarded and the deal was well prepared — enabling it to price very closely to where its much larger peer, Deutsche Bank, had been trading and at the tightest level for any covered bond this year.

The covered bond market ended the week in exceptional shape. Société Générale’s €1.5bn seven year benchmark was trading 10bp tighter in the secondary market on Friday, after pricing at 107bp over mid-swaps on Thursday. Though some syndicate bankers said the trade was priced through the issuer’s outstanding curve and had been a strong success, other felt initial guidance had been too wide.

The covered bond market remains extremely well supported, with recent deals all performing well and secondary flows largely one way. Commonwealth Bank of Australia and Toronto-Dominion have mandated for dollar trades. Yorkshire and Coventry Building Societies have left blackout but could turn to sterling. Bankinter has mandated in euros but is biding its time while Cédulas spreads tighten. ING DiBa is expected soon after roadshowing last week.

The Norwegian Covered Bond Council is trail blazing the Covered Bond Investor Council’s transparency initiative with a data template that sets a great example. Not only does it go well beyond the initial wish list, it also provides additional collateral pool information that until now had not been published by Norwegian issuers.

Société Générale was criticised for overly generous guidance in its recent seven year trade, though syndicate leads said the deal was priced through the borrower’s outstanding curve. With the secondary dominated by bids and buyers baying for fresh paper, SG’s 120bp starting point on Thursday was labelled 10bp too wide.

Credit Suisse attracted a staggering 168 investors for its $2bn three year trade, more than double the interest recent Canadian dollar benchmarks have enjoyed, and it still had to leave some prospective buyers empty handed. The three year 144a/RegS trade was increased from the original $1bn target print on the back of huge demand, and was priced through the secondary curve of Swiss peer UBS on Thursday evening.