Covered Bonds

Portuguese and Irish issuers could follow National Bank of Greece and tender covered bonds ahead of the next ECB Long Term Refinancing Operation in February. Even if participation is half that of NBG’s recent buyback operation, the capital increase could make a compelling argument.

Westpac Banking Corporation priced its first Aussie dollar covered bond on Monday night, following in the wake of Commonwealth Bank of Australia. It mimicked CBA’s choice of tenor and dual fixed rate and floating rate format — but issued slightly less and at a tighter spread.

The Bank of Montreal, Westpac have both priced dollar and Aussie dollar deals while Sparebank 1 is poised to price a euro benchmark. The three deals in three currencies come at a time of dormant Eurozone issuance and illustrate the increasingly global nature of the market.

Bank of Montreal (BMO) seized on robust US demand for Canadian covered bonds, printing $2bn of five year notes on Monday. The deal brings total US dollar issuance this month to $6bn from three deals, a record for January.

Structured covered bonds which use SPVs will remain eligible for bank liquidity buffers, analysts said on Monday. This follows confirmation that ABS will not be eligible for inclusion in the liquidity buffers as it is not issued by a credit institution, the analysts said. They were responding to reports last week, prompted by the latest draft of CRD IV, released by the Danish presidency on January 9, that ABS could be included.

Lingering concerns about the depth of the 144A market have been allayed after Bank of Nova Scotia’s $2.5bn deal on Friday on the back of more than $5bn orders took this January’s supply beyond last year’s almost record levels.

Westpac has mandated Deutsche Bank and Westpac to arrange a series of investor meetings in Europe and will visit Frankfurt, Oslo, Helsinki, Duesseldorf, Munich, Zurich, Vienna, the Netherlands, Paris and London. The borrower is also planning an A$ benchmark following the Commmonwealth Bank of Australia’s success. But scope for eurozone issuance this week is expected to be limited as many banks enter blackout.

As eurozone issuers slip into blackout, Australian, Nordic and Canadian names have taken over primary market supply. Westpac is planning trades in euros and Australian dollars, while Sparebank 1 Boligkreditt began taking indications of interest on a seven year trade this Monday morning.

After a spree of issuance by Australian banks in foreign currencies, Westpac announced plans on Friday to issue its first Australian dollar covered bond, while Bank of New Zealand raised NZ$225m ($180m) through a domestic private placement.

Lloyds launched the sixth sterling deal of 2012 on Friday; the longest dated transaction so far this year and one of the most oversubscribed sterling trades in months. Year to date supply in the currency has already surpassed lower bound estimates for total 2012 issuance, with a raft of UK names yet to come to market.

After three floating rate sterling covered bonds in a week, demand may be approaching exhaustion, for now at least. Lloyds has therefore decided to move to the other end of the curve, mandating BNP Paribas, Lloyds, RBS, Santander and UBS for a sterling deal with at least a 10 year maturity that will be launched on Friday. The transaction comes amidst an appreciably more positive credit backdrop, suggesting Eurozone issuers might be tempted to return next week.

On Thursday UBS issued its debut dollar deal and the first Yankee covered bond of 2012. The $1.5bn three-year priced in line with guidance on an order book just shy of $2bn. Initial indications suggest the deal relied more heavily on international demand than previous US dollar benchmarks.