UK

The covered bond market was quiet on Thursday, though syndicate officials said there were several borrowers that would like to complete trades before the summer lull. Prospective issuers have ample reasons to wait given that a resolution of the situation in Greece appears elusive. However issuers in the UK, New Zealand and Germany will have finished roadshows by the week’s end, and Italian and French names are monitoring the market.

Demand from insurance companies and pension funds for covered bonds has increased this year, according to Barclays research, while interest from central banks and asset managers has fallen. Germany and Austria are the only regions where overall investor interest for covered bonds has decreased noticeably, though in some jurisdictions investors have participated far less in issuance from certain countries.

Westpac New Zealand became the second ever Kiwi bank to issue a euro covered bond when it priced a Eu1bn five year deal on Thursday. Fund managers and central banks snapped up the paper, seeing good value relative to core issuers, and took the opportunity to make investments away from European volatility. Investors will be eagerly anticipating further issuance out of New Zealand, with ANZ NZ next in the pipeline.

Borrowers from peripheral and core jurisdictions priced over Eu6bn worth of benchmark covered bonds across three currencies this week, which included inaugural deals from Italian and New Zealand issuers. Prospects for supply next week are similarly diverse, though volatility and European holidays may narrow the window for issuance.

Moves by the UK’s Independent Commission on Banking to increase protection for UK depositors and taxpayers could have the opposite effect, according to Deutsche Bank research.

The UK covered bond market is set for a long awaited deal after Clydesdale Bank said it would roadshow its inaugural euro denominated deal from June 6.

Scandanvian borrowers have joined their French and German core colleagues to take advantage of a market highly receptive to quality issuance. SpareBank 1 Boligkredit tapped the dollar space on Tuesday, while Nordea Bank Finland priced a well oversubscribed three year euro trade on Thursday. Aktia real estate mortgage bank has mandated banks for a series of investor meetings beginning in early June.

Ratings agencies and covered bond analysts have still not reached a consensus over the most efficient way to mitigate against refinancing risk following a segregation event.

The possibility of a covered bond issuer pricing a deal inside government debt, once considered highly improbable, is now conceivable, say Deutsche Bank and Barclays Capital.

Bayerische Landesbank began taking indications of interest for a benchmark public sector Pfandbrief, expected to be priced on Thursday, which could end the mysterious drought in the covered market.

Secondary market activity has been focused on Spain lately with end account selling noted in multi-cédulas and single names which, among others, have included BBVA. Though it’s technically possible for the issuer to bring a deal flat to the underlying government, some bankers think that the funding window may have passed, albeit temporarily.

Existing measures to prevent liquidity risk hamper borrowers’ use of covered bond funding, according to Barclays Capital research. Mechanisms in place to combat liquidity risk in an asset segregation event have not been appropriate to recent events, it said, and can restrict issuers’ use of covered bond funding during critical periods.