Covered Bonds

New Zealand’s ANZ National sold the first of what will be yearly euro trades, launching a €500m five year transaction which found broad support across investors and jurisdictions.

Austria’s Hypo Noe Gruppe Bank negotiated worsening market conditions on Thursday afternoon to price a no-grow €500m three year Pfandbrief, the second public sector deal in that tenor out of the jurisdiction in two weeks.

The Italian Department of Treasury is considering introducing a new instrument, separate from OBGs and securitisation, that would allow banks to use a wider range of assets for funding. Though only in a discussion phase, the move may see Italian issuers join their French and German counterparts in using structured covered bonds to alleviate funding pressure.

Fitch downgraded four Spanish covered bond programmes and one Portuguese programme on Friday, following its downgrade of Spain from AA+ to AA- on October 7. Without at least a high double-A rated sovereign, said Deutsche bank analysts, covered bonds will increasingly struggle to remain triple-A.

Woori Financial Holdings and the Royal Bank of Scotland have signed an agreement to work on the sale of covered bonds, according to a statement from the South Korean company, though the terms of the sale have not been decided.

With US legislation still in the committee stage, Canadian and European issuers will remain responsible for dollar covered bond supply for the foreseeable future. Several banks with US franchises are understood to be looking into 3a2 documentation as a way to ensure broader access to a coveted investor base, and remove doubts about liquidity and transparency in the nascent market.

US covered bond legislation could get sidelined and face several more years of delay, frustrating a market that hoped to see results before the end of 2011. In stark contrast, Australian legislation sailed through both houses of parliament this week.

With US legislation still in the committee stage, Canadian and European issuers will remain responsible for dollar covered bond supply for the foreseeable future. Several banks with US franchises are understood to be looking into 3a2 documentation as a way to ensure broader access to a coveted investor base, and remove doubts about liquidity and transparency in the nascent market.

While covered bonds regained momentum this week with seven new issues raising a combined €8bn, the depth and durability of the market’s revival remains uncertain. Only two of the week’s borrowers were from core eurozone countries, while average oversubscription across all deals was only 30%.

The Italian Department of Treasury is considering introducing a new instrument, separate from OBGs and securitisation, that would allow banks to use a wider range of assets for funding. Though only in a discussion phase, the move may see Italian issuers join their French and German counterparts in using structured covered bonds to alleviate funding pressure.

A sudden shower of issuance in senior unsecured and covered bonds delighted borrowers, bankers and investors this week. However, although participants welcomed the development, they said it did not represent a sea change in sentiment and the future of Europe’s banks was still hanging in the balance, with ample room for disappointment.