North America

Though primary market activity remains muted, the pipeline continues to grow despite headline risk. A string of mandates for US dollar deals are expected, along with a sterling transaction from Barclays.

The long road to US covered bond legislation took another important step forward this week Tuesday when Republican Scott Garrett introduced the Covered Bond Act 2011. The introduction will be followed by a hearing this Friday in front of the Subcommittee on Capital Markets and Government Sponsored Enterprises.

Landesbank Hessen-Thueringen GZ had the market to itself on Monday, launching its second floating rate covered bond of the year. Though there was a mandate announcement from Caisse de Refinancement de l’Habitat, primary activity has begun to lessen. Nevertheless, names from further afield are on the horizon, with Portuguese national champions watching the market closely and New Zealand’s Westpac expected in the next few days.

The US Treasury published a draft paper on the prospective unwinding of the Government Sponsored Enterprises, Fannie Mae and Freddie Mac on February 11 stating that it would “work with Congress to consider additional means of advance funding for mortgage credit, including potentially the development of a covered bond market”.

The National Bank of Canada’s inaugural covered bond deal arguably achieved what no other covered bond deal has been able to do this year. As opposed to coming with a hefty new issue premium, it priced through the closest comparables. Moreover, with an over subscription of 2.5 times, it attracted the highest level of oversubscription of any covered bond, at that time so far this year. The result had as much to do with the name as it did the tenor.

A clutch of issuers from outside Europe leapt into the covered bond market across a range of currencies this past week in what was a spectacular display of a sector that is becoming increasingly global.

After a slow Wednesday, the European primary market aggressively picked up pace on Thursday with a range of seven deals from six jurisdictions was announced. Many have gone live and all appear to have been readily digested –in large part reflecting the constructive underlying tone to credit markets.

The primary market for European bank issued covered bonds appears to be gently slowing with just one deal from France’s Dexia MA pricing yesterday and another from Germany’s Aareal closing books at midday. In contrast a number of transactions are in the works from Canadian and Australian banks across a range of currencies –inaugural deals from new issuers and several rumours of others.

News earlier this week that the German regulator, Bafin, had sent out a draft letter regarding the treatment of structured covered bonds, has added to concerns that certain structures may see renewed selling pressure. But for some investors this may herald an investment opportunity.

Congressman Scott Garrett, the Republican politician who has been leading a push for covered bond legislation in the US, has been selected to serve as chairman of the capital markets subcommittee in the House of Representatives, an appointment that US lawyers and market observers cited as one of several grounds for optimism that legislation could be passed next year.

John van Boxmeer will leave the treasury and balance sheet management department of TD Financial Bank Group at the end of January 2011. Meanwhile, independently of van Boxmeer’s move, a reorganisation of the department has put Craig Lowery in charge of all funding activities at TD, The Cover understands.

Barclays Capital’s head of covered bond origination in the Americas has left to join RBC Capital Markets, The Cover understands.