GlobalCapital: Will issuers outside Europe want to take advantage of a possible gap in European bank supply?
Timo Boehm, Pimco: Canada and Australia are both regions where we expect to see near term supply, maybe three or four more deals from both markets. They should provide a yield pick-up to core European markets.
Hoarau, Crédit Agricole CIB: I agree, strong issuers from outside Europe are likely to take advantage of limited supply from core European issuers. We are already seeing the full impact of QE and diminishing funding needs in secured format from European issuers. In anticipation of these conditions, market participants have been buying Canadian and Asia Pacific covered bonds at relatively cheap levels during the summer and as a result these bonds have outperformed the rest of the market.
Canadian and Australian names are now well established in the single digit spread area in the mid part of the curve. And the recent reopening of NAB’s outstanding 2021s at the historically tight spread of mid-swaps plus 9bp provides strong evidence of the new pricing paradigm between core European and low beta non-European covered bonds. In the five year area I expect the spread differential between Canadian and Aussie names relative to strong Pfandbrief issuers to not exceed 10bp in primary syndications.
Coyne, NAB: Maintaining funding diversity adds strength to our overall balance sheet structure. So from a covered bond and senior perspective, we will continue to remain active across both products and fund through the cycle. We also like to use our collateral for slightly longer duration than senior given the relative cost benefit to us.
Costa, CGD: To some extent, banks outside Europe already contribute to bridge the gap between supply and demand of bank paper, but the imbalance exists mostly due to the deleveraging effect in many European economies.
Burmeister, DeAWM: Even if we have a favourable supply and demand pattern in Europe the bank treasuries here will still not completely neglect their home markets — if non-EEA issuers are going to jump in and potentially fill the demand vacuum left by European banks. Besides, there are FX considerations to be watched out for non-EEA issuers.
Mugat, AGI: Banks outside Europe have already started to take advantage of the euro denominated covered bond market, especially Canadian, Austrian and New Zealand ones. From a fundamental, regulatory [exclusion from bail-in] and technical point of view [negative net supply], the covered bond market is strongly supported. I suppose they will keep on diversifying the investor base in eurozone.
Gotrane, Caffil: When we look at the unsecured market, we don’t expect a lot of additional supply. There is a lot of short dated liquidity available for banks, also outside Europe. However, for covered bonds it is a different story. The euro market will allow issuers from outside Europe to raise long dated funding at attractive terms and we clearly expect more issuance from outside Europe. This trend is already well underway. Take Canadian covered bond issuers as an example. There was no issuance in euros in 2012, in 2013 issuance was just above €5bn and this year, we reached €5bn from Canada in the first half of the year. We expect that trend to continue, provided that the cross-currency swap remains supportive.