Covered Bonds

Just a week after issuing into the sterling covered bond market, the UK’s Nationwide Building Society returned – this time issuing in euros – but again in the long end of the covered bond curve. The borrower’s decision to return to covered bonds was in part informed by the continued poor state of the long end of the senior unsecured market.

UniCredit SpA yesterday (Tuesday) sold a Eu1.25bn 12 year benchmark off the back of a Eu4.6bn orderbook, the largest ever for an Italian issuer. Bolstered by the pull of a maturity which is rare and increasingly favoured by the regulatory environment, the transaction’s reception was, in the words of one syndicate official, “overwhelming”.

The primary market picked up pace sharply today with a slew of rumoured deals all surfacing at once to take advantage of the continued bid at the long end of the curve – thanks to a rise in underlying yields and receding sovereign risk concerns. By mid morning three benchmark transactions had built combined order books of about Eu10bn. Lloyds TSB probably takes centre stage for its extraordinarily long duration and, at £2.5bn, its immense order book.

Books on Santander’s Holmes 2011-1 deal look healthy, with strongest interest in the dollar pieces. Lead managers BNP Paribas, Deutsche Bank, JP Morgan and Santander GBM updated investors on Tuesday morning, saying that books stood at $600m for the 2.9 year average life ‘A2s’, Eu500m for the 4.9 year average life ‘A3s’, and £300m for the 4.9 year average life ‘A4s’. The $500m 0.9 year ‘A1s’ were preplaced.

Guidance on ABN Amro’s Dolphin 2011-1 Dutch RMBS is 135bp-140bp over three month Euribor for the five year senior notes — 10bp inside the guidance on the last Dutch RMBS, Delta Lloyd’s Arena 2011, and inside secondary market bid prices. ABN Amro, JP Morgan, Rabobank and Royal Bank of Scotland are the lead managers.

Sparebanken Vest Boligkreditt launched its second publically sold covered bond yesterday (Monday). In contrast to France there was no obvious new issue premium, and given its small size and the rarity of Norwegian issuance, the deal was always likely to be an easy sell.

A provincial Spanish court decision allowing borrowers to walk away from their mortgage obligations will have no effect on Spanish RMBS or covered bonds, as other courts are expected overrule the decision, say Fitch and Moody’s.

Fitch and Moody’s placed La Caixa (A+/A2) on negative review last Friday. The rating comes despite a 45bp rally in its senior unsecured CDS at the time it reported results, and ahead of a rumoured five year cédulas issue. Despite the seemingly negative repercussions the prospective deal would remain triple A, even if a downgrade followed.

After good buying in the long end of the French curve at the end of last week, spurred by the back-up in yields, secondary market activity has slowed markedly and the focus is once again back on the primary where there are several deals are in play. The Italian market is taking centre stage amid concerns that one issuer might crowd out the other.