Covered Bonds

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.

Guidance is out on Holmes 2011-1, the first UK RMBS of the new year. Leads BNP Paribas, Deutsche Bank, JP Morgan and Santander GBM are offering the 2.9 year average life dollar tranche at around 135bp over three month Libor, the 4.9 year average life euro tranche at 145bp-150bp over three month Euribor, and the 4.9 year average life sterling tranche at around 145bp over three month Libor. The $500m 0.9 year average life dollar tranche has been preplaced.

Banco Popular Español (BPE) launched the fourth Spanish covered bond of 2011 on Wednesday, amidst hopes that the record premiums which recent Spanish issuers have been forced to offer, may be set to fall.

Secondary market activity has picked up across the board with bankers reporting decent interest in France the UK long end, Germany and, most importantly, Spain.

The primary market for covered bonds appeared to be slowing down with just two taps, LBBW’s Eu250m January 2016 and MuHyp’s Eu150m October 13. Though there was plenty of talk about other possible deals, the primary market had started to look a bit thin on the ground.

Looking ahead, market participants expect more deals to emerge. This morning Banca Monte dei Paschi di Siena announced that Credit Suisse, JP Morgan, Mediobanca, MPS Capital Services, Natixis and Nomura will lead manage a euro benchmark in the near future. Elsewhere in Italy, Credito Emiliano is expected having been on a non-deal roadshow last year.

Sentiment in Spain has improved dramatically in the last week, helped by a buoyant SSA sector along with an announcement from the Spanish finance minister of a set of measures which include ensuring funding for Spanish banks. Second and even third tier Spanish institutions could conceivably issue, though it’s likely more time will be needed before a multi-cédulas deal is possible.

The National Bank of Canada this week launched the third Canadian dollar denominated benchmark of the year. It inaugural deal issued off a newly set up $5bn programme, arguably achieved what no other covered bond deal has been able to do this year.

French covered bond issuance maintained momentum this week with two deals surfacing. Both were successful — but had to pay up for the privilege.

Financial borrowers are suffering as Swiss franc investors dump senior unsecured paper for covered bonds in the face of regulatory changes and the eurozone sovereign crisis.

Banco Popular Español (BPE) launched the fourth Spanish covered bond of 2011 on Wednesday, as hopes rose that the record premiums which recent Spanish issuers have been forced to offer may be set to fall.

Nationwide Building Society’s £750m 15 year sterling denominated covered bond was remarkable, not just for it being the longest duration of any covered bond issued this year, but for the sheer scale of demand emanating from UK insurance companies. Changes to Solvency II made last year meant that covered bonds were likely to be much more attractive as investments — but up until now no one had tested the water.