Covered Bonds

Covered bond traders reported that Australian inaugurals from Commonwealth Bank of Australia and National Australia Bank have traded as much as 10bp tighter in the secondary market, a welcome contrast to the dollar debuts of Westpac and ANZ last November.

The covered bond market enjoyed its busiest week since this time last year, with 10 issuers raising a collective €15bn versus the 15 borrowers who raised €18.5bn in the first week of 2011. But if past form is a guide, the rush of new issuance does not in any way indicate that the markets will remain buoyant in the longer term.

National champions led the frenetic re-opening of the covered bond market this week, but the range of spreads on offer was a clear sign that the credit curve has widened sharply since this time last year.

Banks went on a binge of bond funding as the covered bond and senior debt markets reopened after long gaps. Investors devoured €15bn of covered paper and €10bn of senior.

Société Générale launched the third long dated French benchmark in as many days on Thursday. German investors in particular gave the benchmark trio a vote of confidence, an encouraging change of stance as many had held off from participating in French trades towards the end of last year, according to several market participants.

National Australia Bank launched its debut syndicated covered bond in euros on Thursday, a day after Commonwealth Bank of Australia sold an impressive €1.5bn inaugural trade in the same maturity and currency.

Barclays Bank issued its inaugural sterling benchmark covered bond on Thursday, a 10 year deal that represents a dual win for the borrower. Not only does it diversify its investor base, but it is probably cheaper than it could have funded in euros — not that the funding cost was the only consideration.

The covered bond market enjoyed its busiest week since this time last year, with 10 issuers raising a collective €15bn versus the 15 borrowers who raised €18.5bn in the first week of 2011.

FIG borrowers started reappearing in the Swiss franc market this week after domestic investors imposed a veto on senior unsecured transactions and covered bonds in the last quarter of 2011.

National Bank of Greece is set to increase its core tier one capital by buying back its only covered bond alongside several tier one notes in a tender operation launched on Tuesday. The deadline for the offer is January 13.

Royal Bank of Scotland bankers have responded with a mixture of resignation, frustration and impatience to leaks about the strategic review of its investment bank. Sources say the bank envisages a maximum of 5,000 job cuts in its investment bank, half the number reported elsewhere this week.