United States

Münchener Hypothekenbank’s debut dollar benchmark surprised the market and astonished the issuer, which had only envisaged a small private placement. MuHyp’s next benchmark will be a euro trade after the summer break, but though it is not originating new dollar assets the borrower has not ruled out another public deal in that currency.

Münchener Hypothekenbank (MuHyp) will price its first benchmark dollar covered bond on Friday afternoon, launching the deal after receiving strong reverse enquiry from SSA and central bank buyers.

Despite long being lauded as one of the very few effective private sector solutions for wholesale mortgage funding, covered bonds are not quite so divorced from the state as they might seem. As the bank finance market evolves in Europe, is it possible that the implied state support seen in the most longstanding regime is, over time, replicated in other regimes?

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.

Prudential Insurance in the US has priced a $1bn dual recourse structure that is secured on a pool of legacy sub-prime RMBS but also benefits from a guarantee from the insurance company. Although it has a bullet structure, the cash flows are passed through to noteholders and are sufficient to ensure timely payment of the principal and interest.

Dollar issuance continued its record breaking run on Tuesday, as UBS launched its second benchmark of 2012 in that currency. Sterling and dollars have had record first quarters, though euro supply remains subdued.

Hopes that the US covered bond bill would be passed as soon as this year were dashed last week after it emerged that the US Senate approved the Jumpstart Our Business Startups Act – but crucially without an amendment that included the covered bond bill.

Bankers and lawyers have warned against over-interpreting the effects of imminent US legislation on covered bonds from the UK and elsewhere. The proposed US law may not hit covered bond structures that use SPVs, as industry bodies fear, they told The Cover.

Bank of Montreal (BMO) seized on robust US demand for Canadian covered bonds, printing $2bn of five year notes on Monday. The deal brings total US dollar issuance this month to $6bn from three deals, a record for January.

Year to date covered bond issuance in all currencies has reached €32.3bn, according to Dealogic data. Issuers have launched successful trades in euros, sterling, Norwegian, Danish and Swedish kroner/kronor, Swiss francs and Australia dollars. But US dollar denominated supply, the largest market after euros, has been non-existent.

In a difficult year, when even Europe’s chosen investment instrument, the covered bond, struggled, new markets continued to grow. Canadian banks sold big trades with ease, US dollar supply reached record levels and covered bonds reached a new continent. All exciting developments with implications for 2012 and beyond.

Euro benchmark supply will drop in 2012, covered bond analysts predict, despite the product having become the cornerstone of bank funding. Rarely have analysts’ expectations diverged so far, with issuance estimates ranging from €120bn-€190bn.