First came the Canadians. Now, issuers from France, Sweden and Norway are selling covered bonds in the U.S., making 2011 the busiest first quarter on record for these mortgage-backed securities.

With a week to go in March, foreign banks have sold close to $11 billion of covered bonds--securities backed by a specific pool of mortgages--in the U.S., according to data provider Dealogic. That is more than twice as many as they sold here in all of 2007, the peak of the housing boom, and more than any year since Dealogic began counting in 1995.

No domestic issuer has stepped forward to tap this market so far because--unlike U.S.-style mortgage-backed securities--banks issuing covered bonds must hold the mortgages on their books and meet additional capital requirements. Unlike residential mortgage-backed securities that failed after the housing bubble burst, covered bonds let investors recoup money from banks that issue the bonds as well as from mortgages in the bonds themselves.

Covered bonds are popular in Europe but not in the U.S., partly because banks are not eager to shoulder the additional risk inherent in such bonds but also because investors are wary of what would happen to the assets if an issuing bank failed and was taken over by the Federal Deposit Insurance Corp.

Foreign issues come with guarantees from their respective governments.

DNB Nor Boligkreditt AS (DNBNOR.OS) of Norway announced a five-year $2 billion covered bond backed by the Norwegian government Tuesday. That follows a $2 billion covered bond from Swedbank Mortgage AB of Sweden on Monday, and a $1 billion covered bond from Caisse Centrale DesJardins du Quebec last week.

As many as $60 billion of covered bonds may be sold in the U.S. this year, according to an estimate from Barclays Capital. That would be about twice as many as were sold here in 2010, according to data provider Dealogic.

In 2007, before the credit crisis, foreign and domestic banks sold a $10.7 billion of U.S. dollar-denominated covered bonds. Bank of America Corp. (BAC) was the last U.S. bank to issue a covered bond, a $2 billion dollar-denominated deal in July 2007.

Bank of Montreal (BMO, BMO.T) issued the first covered bond of 2011, a $1.5 billion, five-year deal sold via the private Rule 144a market.

National Bank of Canada (NTIOF, NA.T) followed with a $1 billion, three-year covered bond. Canadian Imperial Bank of Commerce (CM, CM.T) also sold a $2 billion covered bond in January, creating a trifecta of Canadian sellers of U.S. dollar-denominated bonds early in the year.

-By Anusha Shrivastava, Dow Jones Newswires; 212-416-2227; anusha.shrivastava@dowjones.com
Canadian Imperial Bank o... (NYSE:CM)
Historical Stock Chart
From Mar 2024 to Apr 2024 Click Here for more Canadian Imperial Bank o... Charts.
Canadian Imperial Bank o... (NYSE:CM)
Historical Stock Chart
From Apr 2023 to Apr 2024 Click Here for more Canadian Imperial Bank o... Charts.