UK

Covered bond issuance in the first quarter of 2012 was the second busiest ever for the first quarter. Though euro-denominated issuance fell by 45%, this was offset by a large rise in volumes of other currencies such as sterling, dollars and Australian dollars.

Investor appetite for Lloyds, the UK bank, appears to know no bounds. After issuing an ABS CLO and a dollar denominated senior unsecured deal this week, the borrower came back for its third public covered bond deal and it second ultra-long dated sterling deal of the year.

Nationwide spurned the euro market again and instead turned to the US and UK for its first RMBS deal of the year. Taking account of the two year longer maturity, the funding level was tighter compared to its recent sterling covered bond and illustrated the US market’s greater familiarity with ABS in general and UK deals in particular.

The European Commission’s plan to rotate rating agencies should be scrapped, the European Covered Bond Council (ECBC) and European Mortgage Federation (EMF) have strongly recommended.

The covered bond market remains extremely well supported, with recent deals all performing well and secondary flows largely one way. Commonwealth Bank of Australia and Toronto-Dominion have mandated for dollar trades. Yorkshire and Coventry Building Societies have left blackout but could turn to sterling. Bankinter has mandated in euros but is biding its time while Cédulas spreads tighten. ING DiBa is expected soon after roadshowing last week.

The tightest and widest transactions of 2012 were priced on Wednesday, with Bankia launching a two year Cédulas at 290bp over mid-swaps, while Deutsche Bank priced a blow-out seven year trade at 22bp over mid-swaps.

Bankia restarted primary supply on Wednesday, opening books on a two year €500m trade that could easily have been increased on the back of strong demand, according to syndicate leads. Though the settlement date means the bonds cannot be used in the second Long Term Refinancing Operation, the deal still attracted interest from across the Eurozone. As the lowest rated issuer to tap the covered bond market this year, Bankia’s success could prompt other lower tier names to follow.

NAB subsidiary Clydesdale bank has priced an euro denominated RMBS 50bp wider than where NAB issued a floating rate sterling covered bond.

Market sentiment has begun to weaken while the Greek sovereign’s future remains uncertain. The mood has hurt the secondary performance of recent trades across several asset classes, including Barclays’ €2bn five year covered bond which was launched on Wednesday.

Barclays Capital shrugged off sovereign rating action and the possibility of a Greek default to launch a well oversubscribed euro benchmark on Wednesday. The covered bond market remains technically well supported despite negative headlines, and syndicate bankers still expect issuance to move down the credit curve as blackout periods end.

Abbey National priced a £1.5bn dual tranche sterling trade on Wednesday, which boasted the longest covered bond transaction of the year so far, and the fifth short dated sterling floater.

The covered bond primary market remains on fire with deals from the UK’s Abbey National in sterling and Spain’s Caixabank in euros, quickly oversubscribed — allowing leads to move guidance towards the tight end without fear of losing orders. But accounts that had driven the short end of the secondary market tighter since the start of the year are now taking profit, or at least losing interest in adding to their positions — hinting that current euphoria may reach its limit before long.