International banks spark surge in US covered bond issuance

The US dollar covered bond market burst into life in 2010, as foreign banks took advantage of the favourable negative euro-dollar basis. All the signs suggest this year will see more of the same; and there may at last be some positive momentum for a covered bonds market involving US banks.

All bases covered? Non-domestic issuers see the benefits of the dollar covered bond market

Advocates of a US dollar covered bonds market had long faced an uphill struggle: the absence of a legislative framework was one obstacle to a market emerging, but a much bigger impediment was the existence of a thriving, cost-effective private securitisation market.

With US banks able to securitise huge pools of mortgages cheaply, transfer them off-balance sheet to gain regulatory capital relief, and repeat the process; few saw the need to promote securitisation’s more conservative on-balance