Covered Bonds

Sparebank 1 Boligkreddit convinced over 110 accounts to participate in the first publically syndicated seven year covered bond in almost six months.

With as many as three benchmarks pricing in different time zones and currencies in the last 48 hours, it is evident that the covered bond sector has evolved from its parochial roots to a truly global market. However as far as the Eurozone is concerned, issuance has been pitiful. This is in part owed to the cheap three year financing provided by the ECB, but also because many issuers are in blackout. As a result there are few offers and spreads look set to tighten.

When legislation giving Australian issuers permission to issue came into force in October, one of the last remaining pieces in the jigsaw of the global covered bond market fell belatedly into place. With the country’s banks now able to issue the equivalent of up to 8% of their Australian assets in covered bonds, the new law has paved the way for the development of a highly liquid, top quality market potentially worth more than A$150bn.

When legislation giving Australian issuers permission to issue came into force in October, one of the last remaining pieces in the jigsaw of the global covered bond market fell belatedly into place. With the country’s banks now able to issue the equivalent of up to 8% of their Australian assets in covered bonds, the new law has paved the way for the development of a highly liquid, top quality market potentially worth more than A$150bn.

Sparebank 1 Boligkreditt priced a €1.25bn seven year trade on Tuesday at the tight end of guidance, taking year to date Norwegian supply to over €4bn.

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.