Europe

Issuers could hardly hope for a better backdrop to bring benchmark deals. Bond yields are falling and investors are looking to put cash to work across a swathe of asset classes to capitalise on the rally, as seen most emphatically in the senior unsecured market this week. Yet Norway’s Sparebank Vest Boligkreditt remains the only obvious candidate for a deal next week.

Portugal’s Banco BPI launched the second covered bond tender of the year on Thursday and market participants expect more to follow ahead of the second Long Term Refinancing Operation in February.

With many French and Scandinavian issuers in blackout, the European covered bond pipeline is light on potential candidates for primary supply. Dwindling issuance is forcing investors to look at the secondary market for paper and has contributed to some spread tightening, particularly for Spanish Cédulas, making the prospect of a publicly sold deal from a Spanish national champion not quite so far fetched.

Sparebank 1 Boligkreddit convinced over 110 accounts to participate in the first publically syndicated seven year covered bond in almost six months.

With as many as three benchmarks pricing in different time zones and currencies in the last 48 hours, it is evident that the covered bond sector has evolved from its parochial roots to a truly global market. However as far as the Eurozone is concerned, issuance has been pitiful. This is in part owed to the cheap three year financing provided by the ECB, but also because many issuers are in blackout. As a result there are few offers and spreads look set to tighten.

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Sparebank 1 Boligkreditt priced a €1.25bn seven year trade on Tuesday at the tight end of guidance, taking year to date Norwegian supply to over €4bn.

Portuguese and Irish issuers could follow National Bank of Greece and tender covered bonds ahead of the next ECB Long Term Refinancing Operation in February. Even if participation is half that of NBG’s recent buyback operation, the capital increase could make a compelling argument.

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.

Lloyds launched the sixth sterling deal of 2012 on Friday; the longest dated transaction so far this year and one of the most oversubscribed sterling trades in months. Year to date supply in the currency has already surpassed lower bound estimates for total 2012 issuance, with a raft of UK names yet to come to market.

On Thursday UBS issued its debut dollar deal and the first Yankee covered bond of 2012. The $1.5bn three-year priced in line with guidance on an order book just shy of $2bn. Initial indications suggest the deal relied more heavily on international demand than previous US dollar benchmarks.

A sizeable new euro bid for UK RMBS emerged this week as Santander UK’s £2.2bn-equivalent Holmes 2012-1 provided the sector’s first issue of the year. The deal raised funding at levels considerably tighter than where it could have issued in covered bonds.