Covered Bonds

Rabobank's Obvion managed to almost double the size of its Storm 2012-1 RMBS, while tightening pricing on the short tranche by 10bp. The success of the trade surpassed expectations of market participants. Though covered bonds would be cheaper, the RMBS financing is isolated enough to protect the bank's top senior rating.

Bank of New Zealand returned to the market on Monday with a long three year benchmark, after postponing a five year trade earlier this month. The change of maturity and capped deal size yielded a far more positive result, with over 100 accounts contributing to the most oversubscribed order book of the year.

Barclays Capital’s new fiscal strength covered bond indices, which adjust the market value weighted exposure of country risk based on fiscal strength, have won the support of investors polled by The Cover.

The secondary market in covered bonds is in danger of breaking, and though it is not there yet, there are concerns over ‘forced delivery squeezes’ in the repo market which may lead to failed trades. Though it has always been the intention of the European Central Bank to improve liquidity, there are some who now say that it is not doing enough. Covered bonds could risk becoming almost like a private placement market if the current situation persists.

Australian issuers have priced over €11bn across five currencies thus far in 2012, ensuring that despite a steep drop in euro benchmark issuance the global covered bond market retains its record breaking pace.

Issuers could hardly hope for a better backdrop to bring benchmark deals. Bond yields are falling and investors are looking to put cash to work across a swathe of asset classes to capitalise on the rally, as seen most emphatically in the senior unsecured market this week. Yet Norway’s Sparebank Vest Boligkreditt remains the only obvious candidate for a deal next week.

Portugal’s Banco BPI has launched the second covered bond tender of the year, offering a slim premium for its first covered buyback, though rising fears of a Portuguese default could provide an added incentive for investors.

Portugal’s Banco BPI launched the second covered bond tender of the year on Thursday and market participants expect more to follow ahead of the European Central Bank’s second Long Term Refinancing Operation in February.

At first glance, issuance of all covered bonds appears to be little changed this year from the last. But look a bit closer and it becomes clear that the market has been starved of publicly syndicated Eurozone benchmarks.

With many European bank issuers either in blackout or happily ensconced in the ECB’s generous bosom, this week’s four benchmark deals all came from outside the Eurozone, continuing the year’s predominant trend in the covered bond market.

Suggestions that UniCredit plans to raise a €25bn covered bond to take advantage of investor demand are misleading, a member of its treasury team told EuroWeek.

The primary market remained closed on Wednesday, and in the absence of supply, secondary spreads rapidly tightened – suggesting issuers have every reason to bide their time.