Americas

Since its inception in 2008, Canada’s covered bond market has grown steadily to become the cornerstone of US dollar supply. The next step will be the enactment of a covered bond law which will allow Canadian banks to reach investors across the globe. Between regulation and legislation, however, Canadian covered bond issuers face stringent limitations on the product’s use.

Market indices rallied on Thursday, following the EU’s unveiling of its Grand Plan to remedy the eurozone’s woes. BPCE was quick to capitalise on the upturn, securing nearly four times oversubscription for a minimum €200m tap of its 10 year. Bank Austria also moved swiftly on the positive mood and is taking IOIs for possible pricing this afternoon or Friday. Bank of Montreal showed the strength of US demand on Wednesday, when it attracted $3.75bn of demand for its $2bn three year deal. But the floodgates are unlikely to open fully ahead of November 3 when the ECB will announce details of its purchase programme.

German issuers with US dollar assets in their cover pools may start looking at the US 144A market early next year, following the German Association of Pfandbrief Banks (vdp) first US roadshow in three years.

Europe’s banks need to give US covered bond investors more detail and with more frequency if they are to retain access to the coveted buyer base, fund managers have told the industry.

In a stark admission, a senior Pakistani army general told Emerging Markets that current US-Pakistani divisions can’t be resolved

In a panel on new markets at Wednesday’s European Covered Bond Council plenary session it was stated that much hyped US covered bond legislation might not materialise until 2014. But with the OCC and not FDIC likely to be the US covered bond regulator for big banks, a market size of up to $640bn is seen. The Canadian covered bond market is likely to lack homogeneity as non federally regulated borrowers are excluded from the law.

Crédit Mutuel-CIC Home Loan SFH kept the euro market alive on Tuesday with an increase of an outstanding 10 year trade. The €200m tap is the sum total of primary issuance in the last week, though Canadian Imperial Bank of Commerce proved the dollar segment’s resilience to market volatility by taking supply over the same period to $7bn.

Against a backdrop of pervasive hesitancy in the euro market, triple-A rated Toronto Dominion Bank launched the largest ever dollar deal on Wednesday. The $5bn dual tranche trade broke the record held by HBOS, which sold a $3bn 10 year trade in 2007.

Following the US downgrade, the dollar market for triple-A rated bonds has been reduced from around $15,000bn to $136bn, closing the market to dedicated triple A buyers. Covered bonds should benefit, but with up to 40% likely to be downgraded within a year, buyers will need to be selective.

Fitch downgraded Washington Mutual’s covered bonds from AA+ to AA on Monday, because deterioration in US payment-option and interest-only hybrid adjustable rate mortgages (ARM) has increased loss expectations on the cover pool.

Bank of Nova Scotia on Tuesday printed a $2bn 2.15% five year deal, continuing a recent trend of non-European issuers and markets providing primary covered bond supply.

Peripheral covered bonds lagged widening sovereign debt in the secondary market on Wednesday morning, which was triggered by the German finance minister’s warning that the bond buyback programme needed limits. Despite the comment, some traders reported a surprisingly constructive tone, especially when compared with recent weeks. The closure of the European primary market did not however preclude Canada’s Bank of Nova Scotia from issuing a US dollar benchmark which, by virtue of the strong order book, was increased and priced at the tight end of the guidance range.