Norway

Two European banks have issued benchmark dollar covered bonds this week, taking advantage of US investor interest in triple-A assets.

Société Générale convinced almost 150 accounts to participate in its debut euro Obligations de financement de l'habitat. The trade exceeded the already high expectations of syndicate officials following the first euro OH from BPCE.

Secondary trading has paused for breath lately, but there are still good pockets of liquidity and interest – specifically for French, UK and to a lesser extent Dutch and Scandinavian deals. The primary market could be due another slow week though a French deal is highly likely, with Société Générale tipped as a probable candidate. UK issuers are looking at the dollar market but there is speculation that one is looking at sterling.

Primary market activity was confined to a lone mandate from Dexia Municipal Agency on Monday, though issuers across core Europe are watching the market closely, said syndicate officials.

April was the first month without record issuance, and the first in which total supply was less than that of the previous year. Deutsche Bank analysts report that year to date supply of euro benchmarks remains at a clear historical high however, with public issuance from the UK also at record levels. Borrowers from Norway and Spain, among others, have been suggested as likely candidates for next week, and though no mandates have been announced, syndicate officials said the market remains open for peripheral and core names alike.

The larger than expected Eu600m tap of Bankinter’s two year cédulas speaks to potential demand for tier two Spanish issuers. Though no firm rumours are in the market for peripheral issuance next week, bankers believe the moment is there – particularly given that a less certain growth outlook may potentially close the funding window for more challenged names.

Moody’s fifth covered bond monitoring overview suggests that Norwegian covered bonds have the highest collateral quality, according to Bernd Volk, head of European agency and covered bond research at Deutsche Bank. The report also indicates the collateral risk of Portuguese and Irish bonds, has deteriorated, while the cover pools of Spanish and Greek issuers have the highest loss expectancy, said Volk.

During the crisis, the Nordic covered bond market firmly established its credentials as an anchor of stability, with spreads holding firm and borrowers maintaining their access to the market. Since then, continued strong demand for exposure to the region has supported a further narrowing of spreads relative to other core European covered bonds. In the EuroWeek/Natixis Nordic covered bond roundtable, a number of leading issuers from the region discussed the underlying reasons for this strength, and the outlook for the market.

The Federal Deposit Insurance Corp’s intransigent position on the US Covered Bond Act 2011 is likely to provoke increasing ire among US banks as they watch wave upon wave of European issuers taking advantage of liquidity in their own backyard. DNB Nor Boligkredit and Swedbank are the latest to take advantage of this rich seam of competitive financing, raising as much as $4bn between them this week.

The stream of Scandinavian borrowers pricing US dollar denominated covered bonds is continuing, as Moody’s assigned a rating to a Nordea’s new programme and Swedbank priced a dual tranche deal. Other Scandinavians are set to follow.

US dollar denominated covered bond issuance is set for growth, as demand is far outpacing supply, regardless of whether a US law is put a law in place, and European issuers are lining up deals for launch. Funding executives from many institutions explained their strategies at the 3rd Euromoney US Covered Bond Investor Forum on Wednesday this week.