Financials beat retreat on covered bonds Financial institutions around the world raised less using covered bonds in 2012 than at any time in the past 10 years as action by central banks to allay eurozone woes, sluggish growth and new regulations curtailed overall bond issuance. According to figures from Dealogic, global covered bond issuance by financial institutions dropped to $293.3bn in 2012, a 38 per cent fall on the year before and the lowest total since 2002. The final three months of 2012 was the slowest quarter since 2001. Covered bonds are considered one of the safest parts of the bond market as the debt is not only secured against pools of loans but also carries an additional bank guarantee. Gareth Davies, head of European asset-backed securities and covered bond research at JPMorgan, said there were a range of factors affecting low issuance levels by banks in 2012. The sovereign crisis hit overall volumes in Europe, while Australian banks, for example, were seen as haven assets. The European Central Bank's three-year longer-term refinancing operations (LTRO), meanwhile, averted a liquidity squeeze and eased access to public funding markets for some banks, but also reduced the need for other banks to issue. However, the fall in supply comes amid a more general drop in overall bond issuance from banks as they shrink their balance sheets and offload assets in the face of weak growth and new regulations. Nevertheless, the ECB's pledge to buy back the government debt of ailing eurozone governments has triggered a wider markets rally that has paved the way for a return to public debt markets by banks in Portugal and Ireland after a lengthy absence. In recent months, national champion banks in Spain and Italy have also drawn strong demand for new issues from investors. Mr Davies said many investors were starting 2013 "with a blank sheet of paper and their major concern was how to make money," given the low-rate environment. He said that could encourage investors to look more at "interesting" credits in the periphery. On Thursday Spain's BBVA led the reopening of bank bond markets in Europe. BBVA sold €1.5bn of five-year senior unsecured debt, having received an order book of more than €5bn. The deal priced at 295 basis points over mid-swaps, versus initial guidance of 310bp. "We wanted to be first out of the block," said Erik Schotkamp, BBVA's capital and funding management director. "People are in search of yield," he added, noting that the deal had received interest from a range of investors from across Europe. Mr Schotkamp declined to comment on whether the more favourable market environment would encourage BBVA to repay LTRO money early. But he said on a long-term basis such central bank funding should not be part of the mix. France's BNP Paribas was also in the market on Thursday, issuing €1bn of 2018 senior debt at 75bp over midswaps.