Covered Bonds

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 exercise is controversial, with some covered bond participants arguing that the modest tender price differential between the two instruments is not justified and that this undermines the intrinsic relative value of the covered bond.

Caisse de Refinancement de l’Habitat was the first covered bond issuer out of the traps on Tuesday, printing a €2bn 10-1/2 year deal that was driven from the outset by yield-hungry German investors.

The covered bond primary market has opened strongly with a trio of top tier names from core jurisdictions collectively raising around €4.5bn on comfortably oversubscribed books. A further seven deals have been mandated for issuance in the near future. This impressive showing is to be expected given liquidity is technically strong. Yet big challenges lie ahead, specifically for peripheral markets — where borrowers remain shut out.

ING was among the first wave of issuers to restart supply on Tuesday, launching the first Dutch benchmark in almost six months.

UBS was the second of three banks to open books on a covered bond in 2012, bringing a five year euro benchmark on Tuesday. The granularity of the book had the issuer caught in two minds over what to do with the size of the deal, but it eventually chose to print €1.5bn.

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 morning.

An official at a Spanish national champion tells The Cover how he expects to fulfil next year’s funding requirement and how his plan compares with this year’s funding. He thinks covered bonds will remain in the liquidity coverage ratio and believes they may even be lifted to level one. Though the RMBS market has not made a comeback, he thinks that it might. Given the more stable secondary performance versus covered bonds, there is a case for it being included in the LCR which could help the market return.

Australia’s big four banks will look to make euro covered bond debuts early in 2012 after two underwhelming forays into the dollar market in November and a privately placed Norwegian krone transaction in early December.

The ECB’s unprecedented refinancing operation may hit covered bond supply at the short-end of the curve, but medium and long-term issuance — the mainstay of the covered bond market — could benefit from greater confidence in banks’ health, bankers told The Cover.

In a difficult year, when even Europe’s chosen investment instrument, the covered bond, struggled, new markets continued to grow. Canadian banks sold big trades with ease, US dollar supply reached record levels and covered bonds reached a new continent. All exciting developments with implications for 2012 and beyond.

Singled out for special treatment by European regulatory initiatives, covered bonds were the funding tool of choice for the region’s banks in 2011. But an escalating Eurozone crisis meant the record-breaking market entered 2012 relying on state support.

Lloyds TSB has mandated Barclays Capital, Natixis, and UniCredit, alongside itself, as leads for a euro denominated covered bond early in the new year. It will be the UK borrower’s first benchmark covered bond since March.