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Covered bond market: The importance of the three Rs

With little to choose between the capabilities of covered bond departments, issuers are granting mandates for different reasons.

The covered bond market has shuddered to a halt. Increasingly negative repercussions for pricing in the European jumbo market have caused the inter-bank market-making of jumbo covered bonds to be suspended on the recommendation of the European Covered Bond Council’s "eight to eight" committee of market makers and issuers. Conditions are even worse than in September, and the possibility of the entire covered bond market shutting down until the new year is increasingly plausible.

Even on the assumption that it will reopen in January, many banks have been left wondering what they have to do to secure a mandate. On the basis of distribution, if one has a proper sales force and a reasonably good dialogue with issuers, there is very little to choose between potential leads for what little issuance is planned. Increasingly, the difference between getting a mandate and not is coming down to one of three Rs: regionalism, relationship and reciprocity.

Regionalism is not often weighted very strongly, given the nature of covered bond investors. But in a conservative, defensive market, it becomes more important. Relationship is also something that is largely ignored during the boom times but has significant resonance during this period of correction.

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