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European covered bond market: Seeking cover

With a blockbuster issue from Washington Mutual and more U.S. borrowers knocking at the door, the European covered bond market is going global.

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10 Jan 2007

Ben McLannahan

Investors have been nervously eyeing the U.S. housing market recently for clues about the health of the American economy and prospects for stock and bond prices around the world. But when offered a chance to buy a piece of the country's mortgage market through a first-ever issue of covered bonds from a U.S. borrower, they didn't hesitate.

The €4 billion ($5.1 billion) offering by Washington Mutual in September was a blowout success, drawing so many bids that the bank was able to raise the size of the issue from the original €3 billion within little more than an hour. As one of the largest mortgage lenders in the U.S., WaMu's entry into what had been an exclusively European market looks set to pave the way for other American issuers. A number of U.S. financial institutions, including Wachovia Corp. and Countrywide Financial Corp., are studying covered bond issues of their own as a way of broadening their funding base, bankers say.

And growth isn't limited to the U.S. Within Europe, banks from several countries, including Italy and Norway, are preparing to launch issues as soon as their national legislatures adopt covered bond laws, and big players like the U.K.'s

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