Covered Bonds

Investors this week warned the European FIG bond market not to get carried away with its impressive start to 2012, cautioning that many of the challenges that plagued the sector in the final months of last year remained.

Covered bond supply was restricted to an impressive €850m tap from BPCE on Thursday, taking the number of long dated French transactions already this year to six.

A series of mandates from outside the eurozone hit screens on Friday. Australian, New Zealand and Norwegian issuers could all launch in the next two weeks, while three Turkish banks have hired UniCredit Menkul Degerler for trades in 2012.

Nordea Bank Finland launched the largest ever Nordic covered bond and Credit Suisse priced the tightest five year trade of 2012 in another successful week for the covered bond market. However, while the tone remains more constructive than many syndicate bankers had hoped for during December, the list of top tier issuers able to launch stand out trades is almost exhausted.

Covered bond bankers of a bygone era could never have envisaged German Pfandbrief issuers benefiting from rarity value in a January window. But deals from Aareal Bank and Deutsche Pfandbriefbank (pbb) this week appeared to show this had become reality.

Royal Bank of Scotland this week issued its debut covered bond in its home currency, the second issuer to do so already this year. It chose to differentiate itself from Barclays, which sold a 10 year last week, with a longer, 12 year maturity and attracted a strong order book which enabled it to price in line with guidance. The deal has since performed well, in contrast to the Barclays deal.

Investors have devoured nearly €11bn of long dated covered bonds issued since the start of the year, but this week investors began to show fatigue towards deals with elongated maturities.

Senior unsecured bank debt began moving back on to the Swiss franc bond menu this week as a pair of fixed rate deals from Dutch duo ABN Amro and Rabobank rekindled yield-starved investors’ appetite.

Australia and New Zealand Banking Group became the first Australian issuer to launch a second syndicated benchmark covered bond on Monday. Looking to differentiate itself from dual five year euro debuts from Commonwealth Bank of Australia and National Australia Bank last week, the borrower tapped the crowded long end with a 10-1/2 year jumbo.

Investors this week warned the European FIG bond market not to get carried away with its impressive start to 2012, cautioning that many of the challenges that plagued the sector in the final months of last year remained.

Syndicate bankers had expected Thursday’s ECB meeting to curtail supply, but BPCE has courageously squeezed through the funding window with a competitively priced €850m 10-year tap.

The strong Italian and Spanish government debt auction results on Thursday have helped government bond yields tumble, which is good news for issuers. But with cheap financing from the ECB still on offer and covered bond spreads still wide to the government market, primary issuance prospects remain dim.