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Capital Markets

The covered bond party gets bigger

The covered bond market is developing in a way that few could have hoped for a few years back. Everywhere there is evidence of vitality. In addition to established relatively new sectors such as Ireland and the UK, issuers from Portugal, Italy, the Netherlands, Norway, Sweden and even Turkey are expected to join in. Alex Chambers reports.

IMAGINE YOU ARE at a party where the music is discordant, the food and drink are running low and the host is growing weary of guests who are taking advantage of his hospitality. That was the covered bond market five years ago. Now the mood music has altered, food and drink are flowing and the host is welcoming a stream of newcomers.

Newcomers have given the sector an increasingly international flavour over the past few years. If expectations are met, this trend will continue and investors will this year play host to an impressive range of new covered bond issuers from various countries. For a variety of reasons, including new regulations and the need for funding diversification, there is every expectation that the biggest, most liquid and highest-rated European bond segment is about to get bigger.

“Non-German issuance is increasingly prominent,” says Richard Kemmish, covered bond product manager at Dresdner Kleinwort Wasserstein. He estimates that new issuance from new jurisdictions could hit as much as €17 billion. German jumbo Pfandbrief new issuance is already outweighed by supply from Spain. Of the €135 billion-worth of jumbo covered bond issuance in 2005, 42% came from Spain and 34% from Germany.

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