UK

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.

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.