23.04.2012

By Simon Miller

Sterling covered bond issuance has been exceptionally high since the start of 2012, with public placement volumes already exceeding the levels achieved in any previous year, according to Moody's Investors Service.

In a special report, UK Covered Bonds: Strong Q1 2012 Issuance Levels are Credit Positive, Moody's noted that at over £11bn, issuance was nearly double the level seen in 2011, the year with the previous highest issuance.

"The development of a sterling covered bond market is credit positive for UK covered bonds," said Julie Ng, a Moody's Analyst.

She added: "Confidence in a market gains traction as it achieves greater liquidity and depth and tighter pricing; we therefore believe that as this market expands, banks and financial authorities would have greater incentives to support and protect it. In addition, we believe that a robust domestic investor base should improve the funding capabilities of covered bonds during times of market stress."

Moody's said that the emergence of a nascent domestic sterling investor base did not necessarily signal that the UK covered bond market has become as established as some of the core European covered bond jurisdictions.

However, Moody's said that progress to date indicates that "the importance of this market for both issuers and investors is increasing".

"This positive momentum is credit positive for UK covered bonds," added the agency.