UK

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.

Coventry Building Society followed Santander into the short end on Friday, launching a three year sterling floater – the fourth sterling deal in this format since the start of 2012.

Bank of New Zealand returned to the market on Monday with a long three year benchmark, after postponing a five year trade earlier this month. The change of maturity and capped deal size yielded a far more positive result, with over 100 accounts contributing to the most oversubscribed order book of the year.

Barclays Capital’s new fiscal strength covered bond indices, which adjust the market value weighted exposure of country risk based on fiscal strength, have won the support of investors polled by The Cover.

The secondary market in covered bonds is in danger of breaking, and though it is not there yet, there are concerns over ‘forced delivery squeezes’ in the repo market which may lead to failed trades. Though it has always been the intention of the European Central Bank to improve liquidity, there are some who now say that it is not doing enough. Covered bonds could risk becoming almost like a private placement market if the current situation persists.

Lloyds launched the sixth sterling deal of 2012 on Friday; the longest dated transaction so far this year and one of the most oversubscribed sterling trades in months. Year to date supply in the currency has already surpassed lower bound estimates for total 2012 issuance, with a raft of UK names yet to come to market.

A sizeable new euro bid for UK RMBS emerged this week as Santander UK’s £2.2bn-equivalent Holmes 2012-1 provided the sector’s first issue of the year. The deal raised funding at levels considerably tighter than where it could have issued in covered bonds.

National Australia Bank issued its first sterling covered bond on Thursday, choosing the same three year floating format that worked for Barclays and Nationwide earlier this week.