UK

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.

European covered bond issuers, along with senior unsecured financials and investment grade corporates, were this week presented with excellent funding conditions, despite a ratcheting-up of pressure on Spain and Italy in the early part of the week.

Suncorp Bank could turn to the euro market for its next covered bond trade after launching an inaugural deal in Australian dollars this week. Meanwhile, both tranches of Clydesdale Bank’s domestic debut were trading tighter on Friday morning. But though the borrower said it will be a repeat issuer in the covered market, the euro basis swap will consign it to sterling for the time being.

Clydesdale Bank sold a debut benchmark covered bond on Thursday, which was originally mandated in 2010. The borrower opted to take its first step in sterling, and took advantage of demand at both ends of the curve with a well placed dual tranche trade.

The UK’s Clydesdale Bank has finished a domestic roadshow and could launch an inaugural benchmark mid-week after receiving final investor feedback on Tuesday. Australia’s Suncorp Bank, meanwhile, is expected to announce a formal mandate for its own domestic debut later in the week.

Clydesdale Bank will meet investors in London and Scotland this week ahead of a potential sterling trade. It failed to bring an inaugural euro transaction to market last year, but now approaches an undersupplied sterling market with a bolstered balance sheet and strengthened credit story.

Despite the holiday shortened week, activity in the secondary covered bond market has been relatively good. Though not all houses attest to seeing flows, some banks have seen quite a lot. German and Scandinavian markets are very well supported, the UK has performed very well, France is mixed and Spain is offered.

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.

Canadian issuers will no longer be able to use insured mortgages as collateral for covered bonds. Finance minister Jim Flaherty introduced a bill into the Canadian parliament on Thursday that will create a register for covered bond issuers. The bill will also prohibit the use of mortgages insured by private insurers or by the government backed Canadian Mortgage and Housing Corp (CMHC).

The evolution of mortgage funding in the UK market has led to some convergence of RMBS and covered bonds as both markets compete in the three year floating rate space. With investors expected to favour secured instruments and issuers seeking innovative ways to address funding and rating challenges, the UK experience might prove to be a foretaste of things to come in Europe as a whole, The Cover argues.

Skipton, Coventry and West Bromwich building societies have recently priced or are marketing UK RMBS deals. The funding levels are close to each other and are not much more expensive than what could have been achieved in covered bond format.

Increasing encumbrance on bank balance sheets could become an “arms race spiral” of even greater encumbrance, risking financial stability, the Bank of England’s Andrew Haldane said in comments released on Tuesday.