North America

Royal Bank of Canada on Thursday priced its second SEC registered covered bond of the year, a $1.5bn three year deal, through joint leads Citi, RBC Capital Markets and UBS. The transaction took advantage of strong market conditions and a thirst for Canadian exposure unlikely to be quenched until at least the second quarter next year.

Bayerische Landesbank sold its second ever dollar covered bond benchmark on Tuesday, pricing a $500m two year trade that carried one of the lowest ever coupons in the dollar covered bond market.

Norddeutsche Landesbank has sold a stand-out debut dollar covered bond, ending Germany’s six year absence from the 144A covered market. The three year deal on Wednesday carried the lowest ever coupon for a covered bond in that currency and is the only outstanding public sector backed trade in the dollar covered market.

Royal Bank Canada has priced the first SEC registered covered bond in what is likely to be the landmark US dollar trade of the year. The long awaited deal was notable for the breadth of investor demand, its historically low coupon and exceptionally tight spread.

The stressed cover pool losses of Australia’s covered bonds are worse than those in core Europe, Moody’s first performance overview of the jurisdiction revealed on Tuesday. However, Australia still boasts highly rated issuers and impressive collateral scores.

The fledgling US covered bond market took a big step forward this week, after Royal Bank of Canada gained SEC registration for its $12bn covered bond programme. RBC could now bring the first SEC registered covered bond before the end of August.

Münchener Hypothekenbank’s debut dollar benchmark surprised the market and astonished the issuer, which had only envisaged a small private placement. MuHyp’s next benchmark will be a euro trade after the summer break, but though it is not originating new dollar assets the borrower has not ruled out another public deal in that currency.

Canadian banks have issued five benchmark covered bond deals so far this year with a total value of $11.75bn, reinforcing their position as the dominant issuers of US dollar covered bonds. Demand for Canadian covered bonds has remained robust and recently valuations have improved on expectations of diminishing supply. This fundamental value is a function of the strong credit worthiness of Canadian banks and the underlying mortgage collateral which is largely insured by the Canadian Mortgage and Housing Corporation (CMHC), Canada’s national housing agency. The high quality collateral, along with CMHC insurance, gives US investors a lot of comfort and an ability to view these bonds as having minimal credit risk, almost as quasi agency bonds. And with US domestic market supply of agency bonds contracting, investors have had considerable cash to put to work.

Münchener Hypothekenbank (MuHyp) will price its first benchmark dollar covered bond on Friday afternoon, launching the deal after receiving strong reverse enquiry from SSA and central bank buyers.

Despite long being lauded as one of the very few effective private sector solutions for wholesale mortgage funding, covered bonds are not quite so divorced from the state as they might seem. As the bank finance market evolves in Europe, is it possible that the implied state support seen in the most longstanding regime is, over time, replicated in other regimes?

Barclays took year to date dollar benchmark covered bond supply to $24bn with a hugely successful 144A/RegS $2bn five year trade. Panama’s Global Bank has also opened books on its inaugural dollar deal, though given the transaction’s unique structure it is likely to take longer than the typical covered issue.

The Canadian government has released details of domestic covered bond legislation that will ban issuers from using insured mortgages as collateral. Spreads of Canadian covered bonds issued under the new framework will be wider than those backed by insured mortgages, said analysts, and with just months to go until the ban comes into place, a last flurry of insured deals could hit the market.