Currencies

RBS has issued the second sterling covered bond this year and its debut deal in the currency. It chose to differentiate itself from Barclays’ 10 year deal with a longer 12 year. In so doing, it attracted a strong order book enabling it to price in line with guidance and the deal has since performed well, in contrast to Barclays.

Having aimed for a maximum €2bn deal, Nordea Bank Finland ended up printing an even larger trade after its July 2017 drew €3bn of demand. The €2.25bn deal, increased off the back of ECB Covered Bond Purchase Programme participation, is the largest Nordic covered bond ever.

The covered bond primary market continues to enjoy good momentum, with as many as four issuers collectively raising the equivalent of around €5bn in the four to 12 year area across two currencies.

Australia and New Zealand Banking Group, Aareal bank and Compagnie de Financement Foncier successfully raised a collective €2.5bn on Monday, opening the way for Deutsche Pfandbriefbank, Nordea and Credit Mutuel-CIC - which are expected to launch and price deals on Tuesday.

Australia and New Zealand Banking Group became the first Australian issuer to launch a second syndicated benchmark on Monday. Looking to differentiate itself from dual five year euro debuts from Commonwealth Bank of Australia and National Australia Bank last week, the borrower tapped the crowded long end with a 10-1/2 year jumbo.

A better gauge of the depth of covered bond demand is likely this week, as bank arrangers test appetite for slightly more challenged credits. Of the four deals currently in the market, three are not considered the best or easiest names to sell — not that that should necessarily be a problem — provided the spread is right.

The covered bond market enjoyed its busiest week since this time last year, with 10 issuers raising a collective €15bn versus the 15 borrowers who raised €18.5bn in the first week of 2011. But if past form is a guide, the rush of new issuance does not in any way indicate that the markets will remain buoyant in the longer term.

National Australia Bank launched its debut syndicated covered bond in euros on Thursday, a day after Commonwealth Bank of Australia sold an impressive €1.5bn inaugural trade in the same maturity and currency. The trade looks set to price at the same level as CBA, though without attracting the same demand.

National Bank of Greece is set to increase its core tier one capital by buying back its only covered bond alongside several tier one notes in a tender operation launched on Tuesday. The exercise is controversial, with some covered bond participants arguing that the modest tender price differential between the two instruments is not justified and that this undermines the intrinsic relative value of the covered bond.

The covered bond primary market has opened strongly with a trio of top tier names from core jurisdictions collectively raising around €4.5bn on comfortably oversubscribed books. A further seven deals have been mandated for issuance in the near future. This impressive showing is to be expected given liquidity is technically strong. Yet big challenges lie ahead, specifically for peripheral markets — where borrowers remain shut out.

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.

Moody’s has placed five Spanish covered bond programmes on review for downgrade, after taking the same action on the issuers.