Covered Bonds

Abbey National priced a sterling covered bond on Wednesday, taking year-to-date supply in the currency to a record-breaking £7.2bn. The £1.5bn dual tranche trade boasted the longest deal of the year so far and the fifth short dated floater, an unconventional covered bond format that has dominated recent sterling issuance.

Austria’s Bawag has invited holders of its €1bn 4.25% 2014s to tender their notes and is willing to buy up to €500m at a spread of mid-swaps plus 55bp. The offer is unusual for being the first covered bond tender from a borrower in core Europe and the first which targets bonds that trade above par.

Swiss investors showed they were willing to trust the French again this week, as Caisse de Refinancement de l’Habitat priced a jumbo Sfr650m dual tranche covered bond. The Swiss had shunned France and financial institution borrowers in general during the recent zenith of the Eurozone crisis in the last quarter of 2011.

For the first time in Denmark, non-affiliated institutions will pool their mortgage loans to issue covered bonds.

Abbey National priced a £1.5bn dual tranche sterling trade on Wednesday, which boasted the longest covered bond transaction of the year so far, and the fifth short dated sterling floater.

Government owned Canada Mortgage and Housing Corp (CMHC) is approaching the statutory limit on the amount of residential mortgages it can insure. And, with the Canadian authorities keen to reduce the mortgage market’s reliance on the State, it is possible that draft covered bond legislation – that could be out as early as next month – excludes the use of CMHC-insured mortgage loans.

CaixaBank’s €1bn five year offered further proof of returning confidence in the Cédulas market. The deal attracted another large, regionally diverse book, enabling the issuer to print without a new issue premium.

Westpac’s inaugural euro denominated trade was a blow-out success, with orders swelled by demand from Germany and from banks. But an unreconciled book of approaching 140 investors from around the world has also made it very granular. Despite this success, and the fact that the funding door remains firmly open for other issuers, the primary outlook may start to slow, bankers believe.

Westpac has mandated Barclays Capital, Citi, Deutsche Bank and itself for its inaugural euro benchmark. Leads are expected to open book for the four year on Thursday, subject to market conditions. Five year NAB and CBA trades, that were launched earlier this year at mid-swaps plus 100bp, are bid at 74bp and these are likely to provide the best reference.

Banesto has become the first Spanish bank this year to move away from three year funding, selling a long four year Cédulas on Tuesday. The no-grow €500m trade attracted enough demand for a jumbo print, but this deal was about sending a signal to the market and investors, and not about meeting long-term funding requirements.

The covered bond primary market remains on fire with deals from the UK’s Abbey National in sterling and Spain’s Caixabank in euros, quickly oversubscribed — allowing leads to move guidance towards the tight end without fear of losing orders. But accounts that had driven the short end of the secondary market tighter since the start of the year are now taking profit, or at least losing interest in adding to their positions — hinting that current euphoria may reach its limit before long.

The European Central Bank’s long term refinancing operation has been put to good use by the European banking sector. But its lack of discrimination raises dependency and, longer term, increases systemic risks.