Euro

Abbey National sold a £1bn covered bond on Monday, bringing total year to date issuance in that currency to £3bn. Sterling covered issuance in 2011 is already four times greater than last year’s £750m total, according to Dealogic data.

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 covered bond market is hoping a national champion will soon bring the first Portuguese deal of the year, following the sovereign’s successful bond auction on Tuesday. Elsewhere, Spain’s La Caixa mandated banks for its deal and LBBW is in the market with a dollar benchmark. Meanwhile, the pricing of two German deals on Tuesday went as smoothly as anticipated.

Banco Bilbao Vizcaya Argentaria’s five-year cédulas hipotecárias was a seminal deal, not only in the history of covered bonds, but in the way the market relates to the wider Supra Sovereign Agency sector and credit markets. The sheer size of the book, along with the number and type of accounts, illustrated beyond any doubt that the covered bond market has moved from its almost quirky and provincial origins to centre stage in global bank financing.

The primary market continues to steam ahead with BBVA’s latest five year deal proving the major talking point, after it built an astounding book, by far the largest of any deal this year. CM-CIC and Banca Monte dei Paschi di Siena are also in the market with three and seven year deals respectively.

Holmes 2011-1, the UK’s first RMBS this year, should be at least £2bn equivalent in total, thanks in part to a Eu650m preplaced three year euro tranche, which sponsor Santander has added since Tuesday’s investor update.

The UK insurance bid, first properly tested with Nationwide’s 15-year sterling deal, was again reaffirmed with Lloyds TSB’s latest funding exercise. The transaction was notable for being the longest, and carrying the highest coupon, so far this year – as well as for being significantly larger than the Nationwide’s and for attracting almost double the number of accounts.

Just a week after issuing into the sterling covered bond market, the UK’s Nationwide Building Society returned – this time issuing in euros – but again in the long end of the covered bond curve. The borrower’s decision to return to covered bonds was in part informed by the continued poor state of the long end of the senior unsecured market.

UniCredit SpA yesterday (Tuesday) sold a Eu1.25bn 12 year benchmark off the back of a Eu4.6bn orderbook, the largest ever for an Italian issuer. Bolstered by the pull of a maturity which is rare and increasingly favoured by the regulatory environment, the transaction’s reception was, in the words of one syndicate official, “overwhelming”.

The primary market picked up pace sharply today with a slew of rumoured deals all surfacing at once to take advantage of the continued bid at the long end of the curve – thanks to a rise in underlying yields and receding sovereign risk concerns. By mid morning three benchmark transactions had built combined order books of about Eu10bn. Lloyds TSB probably takes centre stage for its extraordinarily long duration and, at £2.5bn, its immense order book.