Europe

Abbey National was the sole benchmark covered bond issuer on Thursday, becoming the first repeat visitor to the sterling space this year, though other names are also expected to return. The comfortably oversubscribed £1.25bn 10 year print enjoyed strong participation from foreign investors, yet another encouraging sign of the sterling market’s growth.

The asset backed security market showed signs of recapturing some of its old swagger this week, playing host to a wide range of transactions and preparing to take down the largest volumes since the onset of the credit crisis in 2007.

Abbey National Treasury Services has beaten Coventry Building Society to be the first to follow a highly successful seven year sterling issue from Yorkshire Building Society on Tuesday. At 10 years in maturity, Abbey’s new £1.25bn deal would, until recently, have been at the shortest end of the sterling curve.

Barclays Bank convinced more than 120 accounts to participate in a Eu1.5bn five year print on Wednesday, which leads said could have been larger, given the deal was almost 2.5 times oversubscribed.

Following positive sell-side reaction to the joint review and consultation on UK covered bond regulation by the Financial Services Authority and HM Treasury, buy-side reaction has been more measured. Investors say transparency risks being diluted over time and the current legal status of covered bonds lacks clarity. But, combined with the European investor initiative, which may have repercussions on the ECB collateral framework, it is clear that all authorities are working in favour of investors and this can only be good.

Compagnie de Financement Foncier priced a difficult Eu1bn 10 year deal on Wednesday, with market participants divided as to why the deal struggled. The jumbo benchmark was priced in line with ambitious guidance, though the slow book build was unexpected in a market primed for long dated paper from a high quality French name.

Moody’s has assigned a triple-A rating to Coventry Building Society’s £1.5bn Series 1 and £500m Series 2 covered bonds. The high amount of interest-only loans, loans to self employed borrowers and those with no income verification is offset against conservative average loan to values and high overcollateralisation

UK prime RMBS from Northern Rock and Royal Bank of Scotland have achieved good momentum, with a total of around £2.8bn placed in the market on Wednesday, and healthy oversubscription. But spreads are moving sideways rather than tightening, Northern Rock paid a plentiful premium, and RBS moved to the wide end of guidance.

Yorkshire Building Society’s successful £750m seven year print proved the sterling market is receptive to short as well as long tenors. The split rated, short dated deal was priced at the tight end of guidance while reaching maximum deal size, and in its wake Coventry Building Society has begun roadshowing an inaugural triple-A rated sterling covered bond to UK investors.

The momentum around long dated core supply rumbles on, with Compagnie de Financement Foncier launching a Eu1bn 10 year benchmark deal on Wednesday. The deal comes amidst some talk that it was not the easiest sell and a continued widening of French paper relative to German. But with the outlook for France stable and a new law set to enhance structured deals, France’s dominance of the covered market looks unthreatened.

UK issuance continues to flow, favoured by analysts and bolstered by a growing domestic bid. Barclays Capital came to market on Wednesday with a successful five year deal in euros. Q1 supply from the UK has been double that of the previous year’s first quarter total, and represents 10% of all covered bonds issued in 2011.

A new transparency initiative was unveiled at Thursday’s European Covered Bond Council plenary session in Stockholm. The prospective new standards will dovetail with a separate transparency initiative by the European Central Bank – potentially implying a material funding benefit for those that comply. The initiative is likely to help quell the clamour for cover pool data, raised most recently by credit intensive investors which have conspicuously swelled demand this year – as well as help investors form a view that is independent of credit ratings.