Royal Bank of Canada has hired Gregory Steele to trade high-yield bonds in the U.S.
He will trade bonds from industrial, forestry, paper and packaging, and consumer-product companies. Steele joined RBC Capital Markets’ investment banking unit from Macquarie Capital USA. Previously, Steele worked at Deutsche Bank.
RBC confirmed that its investment banking unit has been expanding in the U.S. fixed income area since 2009. So far in 2012, RBC is the 10th most active underwriter of high-yield debt in the U.S., moving up three notches from its rank in 2010 and 2011 to reach the highest rank in its history.
On the other end of the fixed income spectrum, RBC has filed a preliminary prospectus to issue SEC-registered “covered bonds.” RBC Capital Markets acted as sole arranger on this registered program, the first-ever SEC-registered covered bond program.
“This development will be viewed positively by the fixed income market,” the company commented. “Many investors have a strong preference to purchase registered securities. SEC-registered covered bonds should be eligible to be included in broad bond indices, qualifying them for more internal investment policies. Registered bonds will also be eligible for the TRACE system which brings more transparency on pricing and better trading liquidity.”
Covered bonds are issued by banks. They are designed to be over-collateralized, in that the bonds are backed by relatively high-quality loans (typically mortgages) and also by the assets of the underlying bank. Thus, covered bonds usually are highly-rated.
Canadian and European banks have sold billions of dollars of covered bonds in the U.S. in recent years, but the issues have been private placement, limited to certain investors. Not only does this result in a restricted pool of buyers, it may constrain development of a secondary market and thus lower liquidity.
The RBC offering, by contrast, will consist of publicly registered covered bonds. If the SEC-registered covered bonds become eligible for inclusion in bond indexes, benchmark-tracking buyers might enter the market, resulting in increased liquidity. RBC’s registration statement for its covered bonds indicates the firm can issue up to $12 billion of those bonds in next three years.
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