With the Washington Mutual deal, it led the way with an inaugural US covered bond; other debuts included Caixa Geral de Depositos’ inaugural Portuguese bond, and DnB NOR’s opening of the Norwegian covered bond market.
For Ted Lord, BarCap’s head of covered bonds, the main themes in the marketplace are diversification and internationalisation. “From an investor perspective, I see a growing desire for covered bond investors to achieve truly globally diversified portfolios, and they will be willing to sacrifice a bit of spread to get that diversification. Helping this process, there is continued growth of covered bond issuers from different countries,” he says.
Mr Lord believes that recent market turmoil can only highlight the quality and benefits of covered bonds. “The covered bond market has continued to function better than other markets. It may not have been perfect, but it stayed open and showed that it can withstand difficult times. As one market after another shut down – including some government bond markets – the covered bond market continually said, ‘we are still open’,” says Mr Lord.
In terms of opportunities for growth, he cites interest from banks such as Royal Bank of Canada, markets such as Greece and Turkey, where the legislation has recently been put in place, and Portugal, which took off from a standing start.
The private placement market is also growing. The size of the ‘namenstitle’ covered bond market in Germany, for example, is estimated to have outstandings of about €800bn, with annual new issuance of about €100bn. “An increasing trend is that covered bond issuers will continue to develop both private placement and yield curves in different currencies,” says Mr Lord.
