Americas

Record covered bond issuance almost reached parity with senior unsecured issuance in the first quarter of 2011, a trend that is unlikely to be reversed by demand constraints on the product, said bankers this week. But widening spreads between the products could put the brakes on.

A massive inflow of Chinese investment into South America last year has brought significant short-term benefits, but could worsen the region’s addiction to commodity exports

Venezuela has announced further multi-billion loan-for-oil deals with China, heightening concerns that it may become overreliant on Chinese trade and investment

The Federal Deposit Insurance Corp’s intransigent position on the US Covered Bond Act 2011 is likely to provoke increasing ire among US banks as they watch wave upon wave of European issuers taking advantage of liquidity in their own backyard. DNB Nor Boligkredit and Swedbank are the latest to take advantage of this rich seam of competitive financing, raising as much as $4bn between them this week.

Around 400 investors, issuers and bankers congregated at The Pierre hotel in New York this week for the third Euromoney US covered bond investor forum. The conference got off to an auspicious start, held just a week after the US Covered Bond Act 2011 was introduced in the House of Representatives. On the same day, Senator Charles Schumer announced that he would introduce legislation in the Senate.

Though primary market activity remains muted, the pipeline continues to grow despite headline risk. A string of mandates for US dollar deals are expected, along with a sterling transaction from Barclays.

The long road to US covered bond legislation took another important step forward this week Tuesday when Republican Scott Garrett introduced the Covered Bond Act 2011. The introduction will be followed by a hearing this Friday in front of the Subcommittee on Capital Markets and Government Sponsored Enterprises.

Landesbank Hessen-Thueringen GZ had the market to itself on Monday, launching its second floating rate covered bond of the year. Though there was a mandate announcement from Caisse de Refinancement de l’Habitat, primary activity has begun to lessen. Nevertheless, names from further afield are on the horizon, with Portuguese national champions watching the market closely and New Zealand’s Westpac expected in the next few days.

The US Treasury published a draft paper on the prospective unwinding of the Government Sponsored Enterprises, Fannie Mae and Freddie Mac on February 11 stating that it would “work with Congress to consider additional means of advance funding for mortgage credit, including potentially the development of a covered bond market”.

The National Bank of Canada’s inaugural covered bond deal arguably achieved what no other covered bond deal has been able to do this year. As opposed to coming with a hefty new issue premium, it priced through the closest comparables. Moreover, with an over subscription of 2.5 times, it attracted the highest level of oversubscription of any covered bond, at that time so far this year. The result had as much to do with the name as it did the tenor.

A clutch of issuers from outside Europe leapt into the covered bond market across a range of currencies this past week in what was a spectacular display of a sector that is becoming increasingly global.

After a slow Wednesday, the European primary market aggressively picked up pace on Thursday with a range of seven deals from six jurisdictions was announced. Many have gone live and all appear to have been readily digested –in large part reflecting the constructive underlying tone to credit markets.