The SEC’s response to a request from RBC to sell registered public offerings of covered bonds is likely to fuel increasing US dollar demand, said Fitch yesterday (Wednesday), adding that Canadian issuers have been given a six month grace period to continue issuing under existing programmes after legislation was announced earlier this month.

The rating agency said that the Securities & Exchange Commission’s (SEC’s) no action letter paves the way for RBC and other issuers to offer covered bonds to a wider range of investors than previous bonds issued under 144A/RegS conventions and that the Commission’s statement also opens the door for US dollar denominated covered bonds to be included in benchmark indices investors use to track returns.

“Fitch believes US dollar-denominated covered bonds are likely to benefit from a larger group of US investors that have been approved to invest in them,” it said.

Nearly half of roughly US$50bn of dollar denominated covered bond issuance in 2011 was driven by Canadian banks, noted Fitch. It said that Canadian issuers have been given a six month grace period to continue issuing covered bonds under existing unregulated programmes, after the Canadian government earlier this month announced its plan for a regulatory covered bond framework, which is expected to be approved by Parliament in the near future.

“Fitch will continue to monitor developments in the framework and provide commentary on any potential rating implications over the next several months,” it said.