Covered bonds and structured covered bonds: Rocked to its core?
The summer’s financial crisis has helped materialize in the markets a distinction between covered bonds and structured covered bonds that had been a matter of debate for some time. Philip Moore reports.
ALL COVERED BONDS are equal. But some are more equal than others. That message came through loud and clear not just from the suggestion at the height of this summer’s liquidity crisis that the market be subdivided into core and non-core sectors. That ill-advised and hastily withdrawn proposal, aired by ACI Germany, was shouted down amid a crescendo of opposition from existing or potential issuers that took exception to being branded as second-class citizens in the covered bond world. It was also plain enough from the performance of the covered bond market at a secondary and primary market level. "It is very obvious from the performance of spreads that there has been a considerable increase in differentiation in the covered bond universe," says Ted Packmohr, senior covered bond analyst at Dresdner Kleinwort in Frankfurt. "The clear winners, spread-wise, have been the German Pfandbriefe and the French obligations foncières, while the issuers that have suffered have been the US, UK and Spanish names."
A tiering process that had been visible in the secondary market in August, most notably in the case of Northern Rock, became equally conspicuous when the primary market hesitantly reopened in early September, giving a distinctly lukewarm welcome to UK issuers.