Covered Bonds

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.

DNB Nor and Lloyds came to market on Wednesday with five year offerings that enjoyed a healthy oversubscription. German investors and bank treasuries drove the trades for the non-eurozone credits, enabling both to price at the tight end of guidance. But in terms of spread, the difference of nearly 120bp showed that the similarities ended there.

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. The trade looks set to price at the same level as CBA, though without attracting the same demand.

Société Générale launched the third French benchmark in as many days on Thursday. The French trio’s reception has been highly positive, with German investors driving the order books.

Barclays Bank opened books for its inaugural sterling benchmark covered bond on Thursday, a 10 year deal that is being marketed at Gilts plus 215-220bp. After less than two hours the book had grown to £1bn, suggesting it has received a very good reception. The funding represents a dual win for the borrower as, not only does it diversify its investor base, but it is also cheaper than euros.

After Tuesday’s trio of trades, a further flurry of primary issuance hit the covered bond market on Wednesday as DNB Nor, Lloyds TSB, Crédit Agricole and Commonwealth Bank of Australia took advantage of buoyant demand to launch deals with attractive new issue premiums.

Though the first day of activity in 2012 brought fewer trades than in 2011, the number of accounts that participated in the deals was up on last year. Almost 400 buyers participated in Tuesday’s salvo, with Germany taking over half of primary allocation.