UK

Holmes 2011-1, the UK’s first RMBS this year, should be at least £2bn equivalent in total, thanks in part to a Eu650m preplaced three year euro tranche, which sponsor Santander has added since Tuesday’s investor update.

The UK insurance bid, first properly tested with Nationwide’s 15-year sterling deal, was again reaffirmed with Lloyds TSB’s latest funding exercise. The transaction was notable for being the longest, and carrying the highest coupon, so far this year – as well as for being significantly larger than the Nationwide’s and for attracting almost double the number of accounts.

Just a week after issuing into the sterling covered bond market, the UK’s Nationwide Building Society returned – this time issuing in euros – but again in the long end of the covered bond curve. The borrower’s decision to return to covered bonds was in part informed by the continued poor state of the long end of the senior unsecured market.

The primary market picked up pace sharply today with a slew of rumoured deals all surfacing at once to take advantage of the continued bid at the long end of the curve – thanks to a rise in underlying yields and receding sovereign risk concerns. By mid morning three benchmark transactions had built combined order books of about Eu10bn. Lloyds TSB probably takes centre stage for its extraordinarily long duration and, at £2.5bn, its immense order book.

Secondary market activity has picked up across the board with bankers reporting decent interest in France the UK long end, Germany and, most importantly, Spain.

Looking ahead, market participants expect more deals to emerge. This morning Banca Monte dei Paschi di Siena announced that Credit Suisse, JP Morgan, Mediobanca, MPS Capital Services, Natixis and Nomura will lead manage a euro benchmark in the near future. Elsewhere in Italy, Credito Emiliano is expected having been on a non-deal roadshow last year.

Santander’s Holmes 2011-1 issue will feature a hard bullet 0.9 year ‘A1’ dollar tranche, as well as a 2.9 year ‘A2’ dollar tranche, and 4.9 year ‘A3’ euro and ‘A4’ sterling tranches. The issuer has preplaced the $500m A1 notes. All the tranches will be floating rate, with the ‘A1’ notes benchmarked to one month Libor, and the other tranches to three month Libor or Euribor.

The UK’s Nationwide Building Society today priced a groundbreaking 15-year covered bond which, for the first time, has attracted UK insurance company demand on a scale that was, until recently, not imaginable. Recent changes to Solvency II, a significant back up in spreads and several other factors have forced these buyers to look at the product with a fresh set of eyes. And where Nationwide has trailed –others are sure to follow.

Santander will bring the first UK prime RMBS deal of the year to market, through Holmes 2011-1. It has mandated BNP Paribas, Deutsche Bank, JP Morgan, and Santander GBM for a roadshow to start next week.

After a slow Wednesday, the European primary market aggressively picked up pace on Thursday with a range of seven deals from six jurisdictions was announced. Many have gone live and all appear to have been readily digested –in large part reflecting the constructive underlying tone to credit markets.

Moody’s expects negative rating actions on covered bonds to substantially outnumber any positive actions in the year ahead, due principally to weakness in the sovereign and banking sectors.

The UK’s Abbey yesterday priced a Eu750m seven year UK regulated covered bond in line with guidance at 150bp over mid swaps. Though ostensibly a smooth book build, those close to the deal said it was far from straightforward, in large part owing to the pricing challenges it faced with respect to its parent company, Santander. Nonetheless, with careful attention to pricing comparables and deal size, a good quality book was successfully achieved.