Europe

Covered bond issuance in the first quarter of 2012 was the second busiest ever for the first quarter. Though euro-denominated issuance fell by 45%, this was offset by a large rise in volumes of other currencies such as sterling, dollars and Australian dollars.

The assets that public sector Pfandbrief issuers select as collateral have become more important, according to Moody’s. As concern around peripheral eurozone sovereigns mounts once again, the rating agency reported that some programmes have increased their exposure to peripheral countries and to assets in sub-investment-grade countries.

French legislation and a strong structure allowed Axa Bank Europe SCF to price a jumbo trade backed by Belgian collateral inside of where Belgian government bonds were trading. Even if long awaited covered bond legislation arrives in Belgium later this year, the issuer told The Cover it intends to remain loyal to Obligations Foncières.

Axa Bank Europe SCF launched its third and largest euro benchmark covered bond on Tuesday, pricing a €1bn trade at the tight end of guidance. Investors seemed untroubled by the rare RMBS collateral, allowing Axa to follow recent French trades in offering a minimal new issue concession.

ASB Finance New Zealand joined the caravan of inaugural transactions from Australia’s largest banks this year when it launched its debut Swiss franc transaction on Monday — a Sfr150m minimum 6-1/2 year fixed rate covered bond.

The covered bond market is primed for supply, with syndicate bankers expecting several trades this week and at least one announcement to hit screens this Monday afternoon. Though mandates are otherwise scarce, the range of products and currencies available to issuers means they can afford to launch at short notice, and keep their options open.

Moody’s provided a timely reminder that all is not right in the state of Spain on Monday. Following a 41% year-on-year decline in mortgage lending, over-collateralisation levels have eroded, it said. The news came against a background of Cédulas selling as concerns mounted for the country’s banking sector, with non-performing loans soaring and house price falls accelerating.

Investors are fed up with focusing too much on the strength of issuing banks to value covered bonds. Now they are demanding more details about the underlying assets. But baring all is not necessarily the solution for borrowers either.

Norway’s Sparebank 1 Boligkreditt became the third European issuer to bring a five year dollar deal in the last two weeks, with all three deals offering the same spread. Also in North America, the Canadian government released its 2012 budget, though details of prospective covered bond legislation remain scarce.

Danske Bank sold a Skr3bn (€340m) five year deal at 115bp over mid-swaps on Thursday, its first benchmark trade in the currency.

HSH Nordbank made a strong return to covered bonds on Thursday, drawing such strong demand — over 100 accounts participated in the €500m no-grow trade — that leads closed books after only 35 minutes.

UBS attracted $3bn in orders for its latest dollar trade, highlighting the depth of demand for the right European name. Swiss spreads are still cheap by historical standards and US buyers still wary of European supply, but dollar issuance from a strong eurozone name was a possibility, said syndicate bankers.