Covered Bonds

The US dollar covered bond market ended its washout since January this week as a pair of Canadian and Swiss names closed $3.5bn of new issues after attracting over $8bn of demand.

While the European Central Bank’s second long term refinancing operation further boosted what was already a very well bid covered bond market, bankers questioned the rally’s sustainability this week.

Société Générale was criticised for pricing its new covered bond too generously this week — even though the bank brought the deal through its curve. Market participants suggested SocGen could have gone tighter by taking advantage of buyers baying for fresh paper and a well bid secondary market.

Covered bond dealers continue to see significant buying in one year to five year bonds amidst reports that a central bank has been aggressively lifting offers in both core and peripheral covered bonds on Thursday.

Société Générale built a €6bn book for its second trade of 2012 on Thursday, pricing a €1.5bn benchmark well inside initial guidance. Meanwhile, Credit Suisse launched only the second dollar trade from a European bank since last September.

A higher than expected take-up from a broader number of banks in the European Central Bank’s second long term refinancing operation has provided a lift to what is already a very well bid covered bond market.

Caisse Centrale Desjardins du Quebec priced its second ever covered bond at the tightest level for a Canadian issuer this year. The $1.5bn 144a/Reg S trade attracted $2.25bn orders from 45 accounts on Tuesday, after over a month without Canadian supply.

ANZ National attracted a €1.3bn book for a €250m tap of its October 2016 at 85bp over mid-swaps, which was inside the secondary level of its outstanding bonds. A few weeks ago the Bank of New Zealand had to postpone as euro deal because leads were unable to find enough demand. This sharp change in perception towards New Zealand covered bond risk pays testimony to a market where the dial can only be set to “on” or “off”.

The performance of cover pools has deteriorated, Crédit Agricole research has found after examining Moody’s, Standard & Poor’s and Fitch’s data. But this is not because of worsening credit risk but rather because of market risk.

ANZ National built a benchmark sized orderbook for a €250m tap of its inaugural euro covered bond on Tuesday and priced the deal inside its outstanding curve. With some buyers sidelined due to a lack of a legislative framework in New Zealand, the strong reception bodes well for an issuer intending to launch yearly euro trades.