North America

Lingering concerns about the depth of the 144A market have been allayed after Bank of Nova Scotia’s $2.5bn deal on Friday on the back of more than $5bn orders took this January’s supply beyond last year’s almost record levels.

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.

Year to date covered bond issuance in all currencies has reached €32.3bn, according to Dealogic data. Issuers have launched successful trades in euros, sterling, Norwegian, Danish and Swedish kroner/kronor, Swiss francs and Australia dollars. But US dollar denominated supply, the largest market after euros, has been non-existent.

In a difficult year, when even Europe’s chosen investment instrument, the covered bond, struggled, new markets continued to grow. Canadian banks sold big trades with ease, US dollar supply reached record levels and covered bonds reached a new continent. All exciting developments with implications for 2012 and beyond.

Euro benchmark supply will drop in 2012, covered bond analysts predict, despite the product having become the cornerstone of bank funding. Rarely have analysts’ expectations diverged so far, with issuance estimates ranging from €120bn-€190bn.

Canadian Imperial Bank of Commerce has priced its first deal after leaving blackout, and the first deal from the jurisdiction in over a month. Canadian banks are not exempt from offering larger premiums to ensure successful execution but continue to find strong support for their product in a market largely closed to European buyers.

RBS braved a hostile market to price the second euro benchmark of the week on Wednesday. Strong domestic and offshore demand made up for a minimal German bid, ensuring a solid €750m print.

European covered bond markets continue to look in poor shape as the macro sovereign backdrop dramatically deteriorates. This suggests that Commonwealth Bank of Australia’s euro denominated benchmark is likely to remain on hold for the time being. But that should not delay Westpac, which is planning to open books on Thursday afternoon.

Australia and New Zealand Banking Group priced the first Australian covered bond on Tuesday, launching a benchmark dollar trade that attracted broad demand and a healthy level of oversubscription. Meanwhile RBS has opened books on the week’s second euro benchmark, though given the jurisdictions concerned CBPP2 remains unable to support the primary market.

A group of four US senators from both political parties has introduced US covered bond legislation into the Senate. Bi-partisan support from the upper house is highly encouraging, and though the Federal Deposit Insurance Corp still has issues with prospective legislation, broad Congressional support could still push the bill through.

In a world echoing with cries for tighter banking regulation, Canada risks strangling one of the most promising covered bond markets through overly stringent supervision.

While Westpac and Commonwealth Bank of Australia headed to the US on Monday to market debut covered bonds, ANZ has started meeting investors in Europe, after finishing a US roadshow last week.