The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Capital Markets

Covered bonds: Covered bonds catch credit crunch cold

Market-making commitment is under pressure.

Although it is unlikely that troubles stemming from US sub-prime mortgages will have any seriously long-term detrimental effects on the covered bond market, nervousness among market participants completely drained liquidity from the sector at the height of the crisis. Participants found a fig leaf to disguise the breakdown in trading in the decision by market makers (meeting via a conference call arranged by the ACI financial markets association) to triple bid-offer spreads in late August. Although this did stabilize the market, subsequent trading of covered bonds was minimal. "The decision to triple bid-offer spreads was a necessity, as all other markets are out of line," says a covered bond analyst.

But at least one senior DCM banker thought the decision was wrong. "Covered bond liquidity! This is a joke!" he says. "These guys got together via the ACI and said ‘there is a breakdown, let’s agree not to quote each other.’ But nobody is calling anybody – there is nothing happening. People are scared to quote their clients because they feel they can’t flip the stuff. All this forced market-making is bullshit..." According to insiders most big banks were not making real prices because capital was needed elsewhere, for instance proprietary trading desks.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree