Europe

The apparent decoupling between asset markets – EM equities, in particular - and continued macro stress this week is a source of optimism for some and fear for others. Take your pick.

National Australia Bank issued its first sterling covered bond on Thursday, choosing the same three year floating format that worked for Barclays and Nationwide earlier this week.

The non-eurozone, no-euro theme in the covered bond market continued on Thursday with the announcement of two debut currency benchmarks, one of which was priced. After the successes of Barclays and Nationwide, National Australia Bank issued its first sterling dea, Lloyds mandated for another sterling deal and UBS is set to bring its first dollar deal.

Terra Boligkreditt successfully raised €500m of five year funding on Wednesday morning, nearly five months after it first mandated for a deal. German and Nordic investors looked past the bond’s Aa2 rating from Moody’s, allowing the issuer to price inside guidance on the back of an oversubscribed book.

Australia and New Zealand Banking Group issued the first Swiss franc covered bond under the new Australian legislation on Monday — a Sfr725m dual tranche note — which was also the largest new issue in recent years for this asset class.

With the euro pipeline looking light on clear candidates, the Australian market came to life on Tuesday. Commonwealth Bank of Australia’s A$3.5bn five year covered bond, the first from an Australian issuer, is the largest ever Australian dollar FIG transaction. Bank of New Zealand, however, found a very different reception for its euro offering and decided to postpone issuance.

Commonwealth Bank of Australia looks set to become the first bank in the country to issue a covered bond in the home currency. The deal is also set to become the largest FIG bond ever sold in Australia.

Some 43% of National Bank of Greece covered bondholders submitted their paper for buyback below par, helping the bank reach a €300m core tier one gain through its liability management exercise.

Nationwide printed £650m of three year floating rate notes to demand on Monday, the second UK covered floater in that maturity in as many working days. Barclays and Nationwide’s covered FRNs highlight the growing demand for UK covered bonds and the broadening range of investors wanting a piece of the market.

Nationwide has kept up the flow of sterling issuance since the start of 2012, following Barclays and RBS with a three year covered bond priced at 165bp over three-month Libor on Monday. As with Barclays’ three year last week, the deal’s floating rate format makes heavy participation from bank treasuries — some of which will be awash with cheap ECB cash — highly likely.

Covered bond spreads have survived sweeping sovereign downgrades by Standard & Poor’s on Friday. Only French issuer Dexia was reported wider on Monday morning, while the LTRO cash injection has ensured short dated Spanish and French paper remains highly sought after.

Covered bond supply was restricted to an impressive €850m tap from BPCE on Thursday, taking the number of long dated French transactions already this year to six.