Americas

The global covered bond market continues to look strong, with a trio of issuers collectively raising the equivalent of more than €4.5bn, on the back of more than €9bn in demand across two currencies. But whether the market’s euphoria can hold out until the end of this week, however, remains to be seen as doubts are starting to creep back in with Thursday’s Greek liability management cut off date fast approaching.

The covered bond market remains extremely well supported, with recent deals all performing well and secondary flows largely one way. Commonwealth Bank of Australia and Toronto-Dominion have mandated for dollar trades. Yorkshire and Coventry Building Societies have left blackout but could turn to sterling. Bankinter has mandated in euros but is biding its time while Cédulas spreads tighten. ING DiBa is expected soon after roadshowing last week.

Caisse Centrale Desjardins du Quebec priced its second ever covered bond at the tightest level for a Canadian issuer this year. The $1.5bn 144a/Reg S trade attracted $2.25bn orders from 45 accounts on Tuesday, after over a month without Canadian supply.

Bankers and lawyers have warned against over-interpreting the effects of imminent US legislation on covered bonds from the UK and elsewhere. The proposed US law may not hit covered bond structures that use SPVs, as industry bodies fear, they told The Cover.

Government owned Canada Mortgage and Housing Corp (CMHC) is approaching the statutory limit on the amount of residential mortgages it can insure. And, with the Canadian authorities keen to reduce the mortgage market’s reliance on the State, it is possible that draft covered bond legislation – that could be out as early as next month – excludes the use of CMHC-insured mortgage loans.

Bank of Montreal (BMO) seized on robust US demand for Canadian covered bonds, printing $2bn of five year notes on Monday. The deal brings total US dollar issuance this month to $6bn from three deals, a record for January.

Lingering concerns about the depth of the 144A market have been allayed after Bank of Nova Scotia’s $2.5bn deal on Friday on the back of more than $5bn orders took this January’s supply beyond last year’s almost record levels.

As eurozone issuers slip into blackout, Australian, Nordic and Canadian names have taken over primary market supply. Westpac is planning trades in euros and Australian dollars, while Sparebank 1 Boligkreditt began taking indications of interest on a seven year trade this Monday morning.

The apparent decoupling between asset markets – EM equities, in particular - and continued macro stress this week is a source of optimism for some and fear for others. Take your pick.

Year to date covered bond issuance in all currencies has reached €32.3bn, according to Dealogic data. Issuers have launched successful trades in euros, sterling, Norwegian, Danish and Swedish kroner/kronor, Swiss francs and Australia dollars. But US dollar denominated supply, the largest market after euros, has been non-existent.

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.

Euro benchmark supply will drop in 2012, covered bond analysts predict, despite the product having become the cornerstone of bank funding. Rarely have analysts’ expectations diverged so far, with issuance estimates ranging from €120bn-€190bn.