Covered Bonds

A sizeable new euro bid for UK RMBS emerged this week as Santander UK’s £2.2bn-equivalent Holmes 2012-1 provided the sector’s first issue of the year. The deal raised funding at levels considerably tighter than where it could have issued in covered bonds.

Some 43% of National Bank of Greece covered bondholders submitted their paper for buyback below par, helping the bank reach a €300m core tier one gain through its liability management exercise.

In stark contrast to the sudden burst and then abrupt stop in covered bond supply from Eurozone names, Nordic and Swiss issuers have brought a steady succession of successful trades. Terra Boligkreditt sold its third ever transaction this week, and UBS made its first foray into a new currency, restarting the dormant dollar market.

Australia and New Zealand Banking Group on Monday initiated what bankers tip to be an Australian-dominated covered bond scene in Switzerland in the next few weeks. ANZ issued a blow-out Sfr725m dual tranche deal — the first under new Australian legislation and the largest new franc covered bond in recent years.

While Australian banks got a multi-currency array of public and private covered bonds away this week after their trio of inaugural euro benchmarks last week, a further sale in the currency by one issuer’s New Zealand subsidiary flopped. Despite Bank of New Zealand’s significant over-collateralisation and ultra-low loan to value ratio, its quintet of lead managers had to postpone its expected deal.

Barclays Bank, Nationwide and National Australia Bank all tapped the sterling market with three year floating rate covered bonds this week. The unusual format gives issuers another way of raising funding, though some bankers questioned the amount of liquidity now left for this sort of deal.

Commonwealth Bank of Australia’s ground-breaking Aussie dollar covered bond deal is the story that everyone was waiting for. Its success disproves the conventional wisdom that euros and dollars are the only really liquid markets.

Moody's looks set to downgrade Eurohypo's Pfandbriefe below triple A, not that it should matter. The rating move is already discounted, and with German supply in such short supply, its outstandng bonds are set to remain well supported. Moreover, with more ECB cheap money coming, Pfandbrief issuers have very little incentive to pay up and go to the public market.

Although the secondary market remains firm with all recently issued deals performing well and new ones likely to be readily absorbed, eurozone borrowers remain noticeable by their absence.

National Australia Bank issued its first sterling covered bond on Thursday, choosing the same three year floating format that worked for Barclays and Nationwide earlier this week.

Santander UK’s Holmes 2012-1, the first UK RMBS of the year, has raised £2.2bn-equivalent and established three year euros as a new sweet spot — a sharp contrast to the dollar-denominated issues of 2011. While the three year dollar tranche stayed at $500m, sized to demand, the three year euro tranche ballooned during bookbuilding on Tuesday.

The non-eurozone, no-euro theme in the covered bond market continued on Thursday with the announcement of two debut currency benchmarks, one of which was priced. After the successes of Barclays and Nationwide, National Australia Bank issued its first sterling dea, Lloyds mandated for another sterling deal and UBS is set to bring its first dollar deal.