Lack of issuance from Europe and the hunt for yield is driving covered bond investors to increase their non-European covered bond investment holding. Australia placed third after Canada and the UK among countries where covered bond investors expected to increase their holdings during 2014, according to a new report from Fitch Ratings. The increased interest in APAC covered bonds shown by investors from outside the region was reflected in the strong start to the Australian covered bond market in 2014. The first quarter saw a total of A$7.3 billion issued between all four major banks, up from A$5.5 billion last quarter and well above A$4.9 billion in issuance for the same period in 2013. There was no issuance in New Zealand in the first quarter of 2014 as issuers were updating their covered bond programs for registration with the Reserve Bank of New Zealand. Three covered bond issuers increased their cover pools, however, with ANZ New Zealand's transfer of NZ$950m in loans heading the list. Underlying loan assets have remained relatively stable during the first quarter of 2014, according to Fitch. That is, while historically low interest rates and higher rental yields have pushed investment mortgage lending along in Australia over the last two years, this market trend has not translated into more investment mortgages in cover pools. This is in part due to the sheer size and seasoning of the major lenders' residential mortgage portfolios. It's also due to the nature of many investment loans, which are structured to maximise the tax benefits available, and investment property loans typically have high LTV ratios, often coupled with an interest-only period on a loan of five to 10 years.In contrast, a typical investment mortgage that is included in Australian and New Zealand cover pools is a full-recourse loan provided to an individual borrower or joint borrowers that are secured by completed dwellings.Also, data presented by Fitch suggested that while investment property financing has increased in Australia over the past two years, the major banks have not been the sole financiers of the increase in investment property. Differences in the mix between residential and investment loans indicate that non-banks are providing a larger proportion of investment loans than the banking sector, said Fitch.