Europe covered bond sales hit decade low European covered bond issuance has fallen to its lowest level in more than a decade, with investors increasingly prepared to lend to the region's banks on an unsecured basis in the wake of the eurozone crisis. Since a record peak of $370bn in issuance during 2011 - when existential fears of a eurozone break-up peaked - European covered bond issuance has fallen to $166bn for the year to date, the lowest figure since 1996, according to Dealogic, the data provider. Covered bonds, which are backed by assets such as mortgages or loans held by the issuing bank, are a crucial source of secure financing seen as relatively safe by investors. But as market confidence has improved since Mario Draghi, head of the European Central Bank, pledged to do "whatever it takes" to save the euro, banks have found it more worthwhile to issue unsecured debt such as senior unsecured bonds. "The main driver [behind the fall in covered bonds] is economics - as markets have rallied so have senior unsecured spreads relative to covered bonds," said Mauricio Noe, managing director of financial institutions group at Deutsche Bank. Banks have voted with their feet and issued more senior unsecured bonds which also don't encumber assets . . . when spread differentials are trimmed, it brings the comparison to a head and covered bonds make less sense. The dearth of covered bonds follows a broader trend of banks deleveraging their balance sheets following the global financial crisis. In addition, banks have often had access to cheap funding via central banks. Global issuance of covered bonds has dropped 30 per cent for the year to date to $193.1bn compared with the same period in 2012. It is the lowest total figure since 2002. "There's high demand among investors but issuance has reduced significantly," said Karlo Fuchs, senior director of covered bonds at S&P. "With banks trying to restructure and meet targets set by regulators, instead of raising more capital they have been deleveraging their balance sheets leading to less covered bonds." European banks" balance sheets, in particular, are widely perceived as still too big. As such, banks are cutting back their international networks and lending - leading to less potential collateral to issue covered bonds. Nevertheless, covered bonds have been an important source of market finance for many banks in peripheral eurozone countries that have struggled to obtain unsecured credit. "The trend going forward is not just household names but smaller banks coming to the market," said Mr Fuchs. What we will continue to see is net negative supply . . . for example, those covered bonds backed by public finance loans which mature are not going to be replenished by mortgage-backed covered bonds.