UK

UK prime RMBS from Northern Rock and Royal Bank of Scotland have achieved good momentum, with a total of around £2.8bn placed in the market on Wednesday, and healthy oversubscription. But spreads are moving sideways rather than tightening, Northern Rock paid a plentiful premium, and RBS moved to the wide end of guidance.

Yorkshire Building Society’s successful £750m seven year print proved the sterling market is receptive to short as well as long tenors. The split rated, short dated deal was priced at the tight end of guidance while reaching maximum deal size, and in its wake Coventry Building Society has begun roadshowing an inaugural triple-A rated sterling covered bond to UK investors.

UK issuance continues to flow, favoured by analysts and bolstered by a growing domestic bid. Barclays Capital came to market on Wednesday with a successful five year deal in euros. Q1 supply from the UK has been double that of the previous year’s first quarter total, and represents 10% of all covered bonds issued in 2011.

Lloyds TSB Bank convinced 135 accounts to participate in a comfortably oversubscribed Eu1.75bn five year issue on Wednesday, which was priced 5bp inside of guidance. Covered bond traders report, however, that the bonds have widened in the secondary market, with other issues this week also underperforming.

French, UK and German names were active on Wednesday, continuing the shift away from southern jurisdictions. Lloyds launched its second euro deal of the year and Nordea became the latest borrower to tap the dollar market. UniCredit ensured peripheral Europe was represented, mandating for a Eu500m tap of an outstanding 2017 trade.

Northern Rock has been trying to play down the significance of its first public post-crisis securitisation, a £1.5bn prime RMBS. The state-owned bank was rescued by the UK government in 2007— the bank was heavily dependent on wholesale funding and struggled to finance itself when ABS markets packed up. Its reliance on securitisation was widely blamed for the bank’s fall from grace.

The debate around cover pool transparency has once again reared its head after M&G Investments warned that “not all covered bonds are alike and while some are exceptionally strong, the opaque structure of many others could harbour unwelcome surprises for investors.”

Deutsche Bank, JP Morgan and Royal Bank of Scotland will sell Northern Rock’s first public post-crisis securitisation, a £1.5bn prime RMBS. The deal will be issued through Gosforth Funding 2011-1, which will be a standalone static pool deal.

US dollar denominated covered bond issuance is set for growth, as demand is far outpacing supply, regardless of whether a US law is put a law in place, and European issuers are lining up deals for launch. Funding executives from many institutions explained their strategies at the 3rd Euromoney US Covered Bond Investor Forum on Wednesday this week.

JP Morgan and Royal Bank of Scotland have closed books on Skipton Building Society’s Darrowby No1 Funding, a UK prime RMBS. The long four year piece was priced broadly in line with UK covered bonds launched earlier this year, albeit its duration was shorter.

Though primary market activity remains muted, the pipeline continues to grow despite headline risk. A string of mandates for US dollar deals are expected, along with a sterling transaction from Barclays.

RBS priced its second euro denominated covered bond deal of the year on Tuesday, a transaction notable for its particularly granular book and attractive pricing relative to where it would have funded itself in the senior unsecured market.