BNP Paribas is launching a dollar covered bond index, the first to list all non-SEC registered US dollar bonds, which will give US investors a benchmarking tool in this burgeoning market. "Indices are even more important in the US than in Europe where the majority of investors look to their own benchmark indices," said a covered bond syndicate.
European issuers have increasingly used the US market for funding, a trend that looks to be reinforced by the effective shut down of the euro market in recent weeks. Sales of Yankee covered bonds hit a record half-year level at US $19.5 billion, and many believe that 2011 supply could still be double last year's all-time high of US $30billion.
"The second half of 2010 was very good for covered bond activity in US dollars," said Ralf Grossman, head of covered bond origination at SG CIB. "This time last year we only had around US $8billion of supply, and we are more than double that already."
But so far, US dollar covered bond issues have not been SEC registered and are therefore currently eligible only for the Barclays Capital Euro dollar and Global Aggregate Indices.
Barclays Capital stated last September that there are no covered bonds that meet its US Aggregate inclusion rules. The new BNP Paribas covered bond index, which is set to be unveiled in August, will be used as a benchmark tracking index and list transactions with maturities of one to 10 years. BNP Paribas is creating the product at the request of investors who want to a US dollar denominated covered bonds index.
BNP Paribas is using the European iBoxx index as a template which currently evaluates the structure, trading patterns, issuance process, liquidity and spread levels of European covered bonds.
"It will be interesting to see whether or not US investors are allowed to use this. There is currently a gap in the market for an index that lists all covered bond issuers but the rules in the US are quite strict which has prevented Barclays from creating a universal index," said a syndicate official.
Sources said that other banks will likely follow suit. "It makes sense to create a listing that includes all US covered bonds. I'm sure BNP Paribas is not the only bank that is looking at doing this," a source said.
Comments
Comments are closed.