The European covered bond market reopened in late August after a seven-week hiatus. On August 24 ING issued a 10-year euro transaction in the morning which was followed by a five-year dollar deal from Swedbank in the afternoon. But the big surprise was a €1 billion trade the following day from UniCredit. The Italian bank had to offer a new-issue premium of 20 basis points but managed to get the deal away despite the turbulence surrounding the sovereign. The deal, which priced at 215bp over mid-swaps, was underwritten by BNP Paribas, HSBC, Société Générale, UBS and UniCredit.
By September 1 there had been 12 euro benchmark deals totalling €16.2 billion, together with the $1 billion Swedbank dollar deal since the reopening. It is far from business as usual. First, overall market activity in European FIG has fallen dramatically. The €22 billion covered bond issuance in July and August 2011 accounted for 79% of market supply – similar issuance levels in July and August 2010 accounted for just 27% of the total. This is the only game in town.
But it is also a triple-A only game. With the exception of UniCredit all the deals since the market reopened have been for triple-A credits.
