North America

The market survived an early test of appetite for lengthy structured deals in Royal Bank of Canada’s (RBC) Eu1.25bn 10 year transaction, which was priced at 20bp over mid-swaps yesterday (Wednesday).

Royal Bank of Canada (RBC) looks set to successfully re-open the long end of the covered bond market. Pricing of 20bp over mid-swaps proved enough to attract Eu1.46bn of orders, allowing the final size of the deal to be set at Eu1.25bn. Final pricing is expected this afternoon (Wednesday).

Royal Bank of Canada (RBC) restarted 10 supply by boldly announcing such a mandate yesterday (Monday), attempting to follow the success of its debut five year with a 10 year euro jumbo in the face of a market that had proved hostile to both structured covered bonds and longer dated maturities.

Moody’s has put on review for downgrade the triple-A ratings of WM Covered Bond Programme issues, after cutting Washington Mutual Inc from A3 to Baa2 and Washington Mutual Bank from A2 to Baa1, both with stable outlook. The rating agency had said in its pre-sale report that the covered bonds could come under pressure if WaMu Bank’s rating fell below A3.

The covered bond market continued to enjoy calmer weather this week, with spreads recovering on the back of a calm week. Market participants reported that potential issuers now felt secondary spreads were stable enough to guide future issuance.

Dominion Bond Rating Service (DBRS) has assigned a provisional triple-A rating to Bank of Montreal’s covered bond programme. BMO is expected to launch what will only be the second Canadian covered bond in January.

Bank of Montreal is confident that it can repeat the success Royal Bank of Canada enjoyed with its debut when it becomes the second issuer of Canadian covered bonds in the new year. The bank told The Cover that it was encouraged by the reception given to RBC’s inaugural issue.

Bank of Montreal will early next year become the second Canadian covered bond issuer after Royal Bank of Canada, having today (Monday) announced that it has mandated Bank of Montreal Capital Markets, HSBC, Morgan Stanley, Société Générale and UniCredit for its inaugural covered bond.

Washington Mutual spreads ballooned again this (Thursday) morning on the back of a 17.3% fall in its share price yesterday (Wednesday), as concerns about its financial performance and the impact of the New York attorney general’s investigation into mortgage appraisals grew.

The ECBC’s “eight-to-eight” committee of the leading market-makers and issuers this (Friday) morning discussed market-making in Washington Mutual covered bonds in light of New York Attorney General Andrew Cuomo’s announcement yesterday that his office is suing First American Corp for allegedly colluding with WaMu to inflate mortgage appraisals, which had caused its spreads to widen sharply in early trading. However, the committee of leading market-makers and issuers said that the issue was outside of its remit and said that dealers should take up the issue with WaMu.

Leading issuers including Bank of Scotland and Depfa called for a greater commitment to the product from broker-dealers in New York if the covered bond market is to build on the foundations that they laid in the US early this year.

As a follow-up to yesterday's article on comments by Sheila Bair, chairman of the Federal Deposit Insurance Corporation, today we have posted clips of her speech on The Cover.