The European market for bonds backed by mortgages and other assets saw very strong issuance growth in the third quarter driven mainly by what continues to be a surprisingly strong year for residential mortgage- backed securities.

The volume of new bonds sold in the three months to the end of September was almost 150 per cent ahead of the same period last year at EU107.1bn, which put the growth in issuance for the first nine months at more than 54 per cent to EU283bn, according to figures out today from the European Securitisation Forum, the trade body.

More than half the volumes came from an unexpected boom in residential mortgage-backed securities, which pool together groups of home loans and sell off differently rated bonds that carry varying degrees of risk. The market had expected low growth for RMBS deals this year, with the ESF itself saying average market predictions at the start of the year were for growth of just 5 per cent.

However, issuance to date is more than 70 per cent ahead of the first nine months of last year at EU150.6bn. The main push for this growth was the trend among the big banks to securitise increasingly large chunks of their mortgage books, particularly in the UK, where a number of records have been set this year. LloydsTSB recently topped them all with the sale of the largest ever funded securitisation - a £7bn RMBS deal, which will show up in fourth-quarter figures.

Banks were a big influence on securitisation market growth in general as they have pursued far larger programmes to offload lending risks from their balance sheets than many in the market had expected - not just in commercial and residential mortgages, but in corporate loans as well.

The fourth quarter is usually the strongest for bank balance sheet deals as they look to address regulatory capital requirement targets ahead of their year-end accounting periods, which suggests a further flood of deals is yet to come.

The other main driver of growth in securitisation was the booming market for complex structured investments backed by portfolios of leveraged loans.

These collateralised loan obligations made up a hefty proportion of the growth in all types of collateralised debt obligations, which pool together diverse groups of debts and sell tranches with varying risk profiles.

CDO issuance almost doubled to EU48.6bn in the first nine months, the ESF said.

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