Canada

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.

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.

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.

Canadian Imperial Bank of Commerce has priced its first deal after leaving blackout, and the first deal from the jurisdiction in over a month. Canadian banks are not exempt from offering larger premiums to ensure successful execution but continue to find strong support for their product in a market largely closed to European buyers.

In a world echoing with cries for tighter banking regulation, Canada risks strangling one of the most promising covered bond markets through overly stringent supervision.

Activity has once again shifted into dollars, with European investors paralysed by a lack of detail on the upcoming ECB covered bond purchase programme and a resolution of the sovereign debt crisis. Meanwhile Canadian banks issue dollar deals with ease, and Australia’s big four could be swayed into taking the same route for their respective debuts, said syndicate officials.