CREDIT INVESTORS FORECAST TO BUY COVERED BONDS
25 Mar 2011
-Hugh Leask
Issuers in Europe's covered bond market are predicting more credit investors to dive into the sector this year, as well as strong, sustained interest from the U.S. buy-side, according to panelists at Information Management Network's issuer strategy roundtable on covered bonds in London.
More real money players and credit investors have begun looking at covered bonds, panellists said Friday at the fourth annual global covered bonds conference. This comes despite a retraction of the sector's traditional bank investor base since the financial crisis.
Gary Staines, director in the structured securitization group at Lloyds Banking Group in London, said new investors are looking more closely at the composition and quality of collateral pools, rather than solely at the bank itself. The trend is partly driven by regulatory demand for greater transparency and data disclosure in structured finance, Staines said, but added the enhanced scrutiny is also coming from a migration of credit investors from the securitization market. "It depends on what the background of the investor is, but it is increasingly common," Staines told the panel. "It's driven also by U.S. interest too."
U.S. investors are scoping out covered bond issues from European and Canadian banks, the panelists said. Heiko Langer, senior covered bond analyst at BNP Paribas, said interest from North America is helping take supply pressure off the existing market. Stephen Hynes, head of securitization at the Royal Bank of Scotland in London, agreed, adding that U.K. issuers see opportunity in the U.S. "The U.K. has not really gone into the U.S., yet with covered bonds." But with regard to U.S. investor interest he said, "We have seen it and we expect more of it."
U.K. issuers may be holding back from issuing covered bonds into the U.S. because of pricing issues. "But that dissipates as more as covered bond-focused investors come into the landscape in the U.S.," Hynes said.
Issuance into the U.S. market is also determined by other factors, including the availability and pricing efficiency of assets at a given time, as well as the potential changes in swap costs, Hynes said. Langer added, "If swap costs change between the euro and dollar, then this might affect [issuance]."
