Currencies

Cold shouldered by international capital markets, Italian covered bond issuers are increasingly turning to the ECB and domestic retail investors to backstop their funding amid a threats of a sovereign meltdown.

The euro covered bond market has begun to show signs of life, a full five trading days after the formal start of the ECB purchase programme. Crédit Mutuel Arkéa will price a rare dual tranche tap later on Wednesday.

News of the ECB’s latest covered bond purchase programme has failed to move secondary spreads, analysts and syndicate officials told The Cover on Monday. Meanwhile the situation in peripheral jurisdictions continues to deteriorate, making the programme’s success all the more contingent upon concrete political resolution in the individual countries, and Europe as a whole.

For the first time in many months, the RMBS market looks set for potentially greater issuance than the covered bond market this week as two issuers are preparing benchmark transactions. Rabobank, which is also out with a tier one hybrid deal today, is also planning on a dual tranche prime RMBS through its Obvion subsidiary. Meanwhile, Barclays, which has been out of the RMBS market for four years, is embarking on a US and UK roadshow for an RMBS issued from its Gracechurch platform.

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.

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.

Standard Chartered says the lower tier two it issued in Singapore dollars on Thursday is just part of business as usual for the growing institution.

Australia’s largest lender, Commonwealth Bank of Australia (CBA), will hold talks with investors ahead of its debut covered bond, it said on Wednesday. The country’s issuers are lining up to make their first forays into covered bonds after domestic legislation received Royal Assent this week.

Despite a widening yield spread between France and Germany, French covered bonds continue to perform well, bolstered by support from domestic investors. French issuers, prescient of their 2012 funding needs and the risk to their country’s top rating, could be tempted to return to the markets with a benchmark before the end of the month.

Coventry Building Society got the covered bond market off to strong start on Monday morning launching its first euro trade amid a general upturn in sentiment. Core Europe is also showing signs of life, with UniCredit Bank Austria mandating for a public sector backed transaction.

UniCredit Bank Austria will look to bring its third benchmark covered bond of the year in the next few days, market conditions permitting. The issuer can expect strong participation from Austrian and German investors, but it is also visiting investors in Helsinki and Copenhagen on Tuesday in a bid for more Nordic interest.

New Zealand’s ANZ National sold the first of what will be yearly euro trades, launching a €500m five year transaction which found broad support across investors and jurisdictions.