Covered Bonds

Abbey National sold a £1bn covered bond on Monday, bringing total year to date issuance in that currency to £3bn. Sterling covered issuance in 2011 is already four times greater than last year’s £750m total, according to Dealogic data.

The covered bond market remains primed for issuance despite the quietest week so far this year in terms of primary market activity. Spanish borrowers may join Abbey National and Westpac New Zealand in the market next week, though Abbey’s inaugural sterling issue and Westpac’s first covered bond transaction are set to take centre stage.

The US inched closer to getting its own covered bonds market last Friday, after the endorsement of the asset class in a draft Treasury report. There are hopes that legislation to create the sector could be approved by President Obama by the end of the year, although there is still opposition to overcome.

The covered market is taking its first real pause for breath since issuance restarted in early January. A rise in Bund futures and widening peripheral spreads, set against a backdrop of record supply, restricted primary issuance this week to long dated benchmarks from Caisse de Refinancement de l’Habitat (see separate story) and UniCredit Bank Austria, as well as taps from Banco Popular and CRH.

Bank Austria priced its first Eu1bn deal on Wednesday. Westpac New Zealand is expected to launch its first euro benchmark covered bond in the near future and Abbey National is due to finish roadshowing on Friday for its inaugural sterling issue.

As the blackout period comes to an end and primary volumes pick up towards the end of the month a change in demand dynamics could be ushered in. A handful of large German accounts are said to be increasingly questioning the relative value of German Pfandbriefe, according to one bank originator.

The Spanish secondary market is still well supported with bank traders continuing to see strong two way flows in the five year area for the best names, although La Caixa has widened. Multi-cédulas continue to see steady demand.

Following negative rating action, the Irish market has proved a focus of attention in the secondary market lately, though wide bid/offer spreads make trading very difficult. Dealers estimate that bids are about 30bp wider over the last couple of days.

Italian financial services group Unipol is looking for buyers to take parts of Grecale ABS 2008 off its balance sheet, according to several ABS fund managers. The bank issued and retained the deal in 2008, but now aims to sell at least part of it into the market, following a restructuring of the transaction.

Paying testimony to the big long end bid, Caisse de Refinancement de l’Habitat on Tuesday priced the largest 12-year covered bond for over a year and UniCredit Austria priced a Eu1bn 10-year benchmark on Wednesday. Despite a peripheral softening, higher yielding covered bonds are still in demand with Spanish issuer Banco Popular tapping its two year.