Sterling covered bond volume has been quite high beginning in 2012. Public placement volumes are already more than the levels seen in any previous year, Moody's Investors Service said in a new special comment published today.

Exceeding £11 billion, issuance was close to double that seen last year, which is the year with the previous highest volume, according to the rating agency.

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

She added that a robust domestic buyer base can make the funding capabilities of covered bonds better in times of market stress. 

Moody's also reported that the emergence of a nascent domestic sterling buyer base does not immediately mean that the U.K. covered bond sector has become as established as some of the core European covered bond jurisdictions.

But, Moody's said that the progress to date might mean that the importance of this asset class for issuers and investors is increasing. "This positive momentum is credit positive for U.K. covered bonds," the rating agency stated.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.