US dollar covered bonds including recent Aussie and Scandi deals have been holding their own in the face of softer spreads across other FIG sectors, according to syndicate officials, who said accounts appeared willing to invest in higher spread issuers if conditions stabilise.

One said yesterday (Tuesday) that covered bond spreads are “remarkably” stable given widening of senior unsecured spreads, for example, with recently launched deals for the likes of Nordea, DNB, and Svenska Handelsbanken out by 20bp-35bp.

Covered bond performance has been “pretty impressive” in this context, he said, adding that the covered bond market felt stronger relative to the rest of the capital structure than was the case toward the end of 2011.

He attributed this to the investors participating in recent dollar transactions, and Scandinavian deals in particular, calling them “a very safe pair of hands”.

“We haven’t seen much selling, we are not being harassed for bids,” he said. “Investors are looking for more and more names, and there is and would be demand for higher spread names.”

With overall market tone quite weak this week, however, benchmark supply would be more likely to resume next week and/or the week after, he said.

“The market as a whole feels quite weak, but covered bonds are a glimmer of hope,” he said.

Another syndicate banker said that US-targeted new issue supply had been digested well, and that some issuers are “circling”.

And while Europe being “in the headlines” again represented an obstacle to a broadening of supply in the short term, in the medium term the market is moving in the right direction, he said, citing improved investor education and expansion of the investor base.

He noted that Australian paper had “settled in nicely” after a $2bn five year Commonwealth Bank of Australia deal was priced on 5 March, with Canadian and Swedish covered bonds also holding in.

He drew attention to a tighter secondary market level for CBA’s March 2017 deal (just inside 90bp over swaps) than for November 2016 issues from fellow Australian banks ANZ and Westpac (just inside 100bp over), and said that this speaks to the diversity of the order book for CBA’s transaction and its larger size – $2bn versus $1.25bn and $1bn for ANZ and Westpac.

He said that he had expected some selling of Canadian issues because of the loss of rarity value in the event that CMHC-insured mortgages are no longer allowed as collateral.

This is something that market participants had widely expected to be clarified in the Canadian government’s budget of 29 March, but no covered bond legislation was revealed or any word given on the future cover pool eligibility of CMHC-insured mortgages. Only a role as “administrator” of covered bonds for CMHC was announced.

Another syndicate official said that his bank had seen some selling of Canadian covered bonds after the budget, but that this was a marginal and very controlled development.