Covered Bonds

A day after Santander said it would not need to access wholesale markets this year, the bank surprised the market and broke the seven month cédulas drought with a blow-out €2bn three year.

Sparebanken Vest Boligkreddit priced the tightest Scandinavian deal of the year on Tuesday, and became the second issuer in as many days to enjoy the most heavily oversubscribed book of the year – being three times covered.

Sparebanken Vest Boligkreditt (SVB) uncovered €1.6bn of demand in one hour and priced the tightest Norwegian deal this year on Tuesday. Meanwhile, Erste Bank is looking to issue a new 10-year.

Bank of New Zealand convinced over 117 investors to participate in a three times oversubscribed trade on Monday. The surge of demand for the three year deal took leads by surprise, and market participants expect other non-European names to take advantage of investors’ hunger for the short end.

The ECB's Long Term Refinancing Operation could increase the bid for covered bonds through its restorative effect on the senior unsecured market.

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.