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ECBDA Covered Bond Survey Shows Sustained Investor Appetite for Covered Bonds

The ECBDA (European Covered Bond Dealers Association) today released its 1st Annual European Covered Bond Investors Survey. Completed by key European covered bond investors over the course of Q1 2009, the survey broadly represents the market with responses from 65 investors spanning 18 different countries.
The results show investors, including asset managers, commercial banks, pension funds and other institutional buyers, continue to have appetite for covered bonds. 64% of respondents were looking to increase or maintain their investment in covered bonds for 2009. The new issue market has picked up significantly for covered bonds. Last week was the busiest this year for covered bonds with 5 transactions priced totaling Eur 6.5bn. Total issuance year-to-date increased to Eur22.9bn according to research at Barclays Capital. "Covered bonds remains an important asset class for funding purposes as demonstrated by the increase in new issue activity we have seen this week," said Torsten Elling, Head of Covered Bonds Syndicate and Trading at Barclays Capital and co-chair of the ECBDA.

Results of the survey, completed prior to the announcement of the ECB buy-back program, showed differing opinions from investors on whether spreads would tighten or widen this year, indicating prior uncertainty by investors on the direction of the market. The announcement by the ECB to purchase Eur 60bn of covered bonds has added further positive momentum to the market which has seen new issues well received and priced at the tight end of initial range, according to BNP Paribas. “The ECB stance has actually reopened the market by rebalancing clients interests and providing a backstop bid for covered bonds holders. This has brought back to the primary market several clients which were staying on the sideline and waiting for such a signal to reenter,” said Sebastien Gianfermi, Head of SAS and Covered Bonds Trading at BNP Paribas. The ECBDA welcomes this ECB's plan which further demonstrates the importance of the product in the market and on the underlying economy. "Covered bonds remain a crucial funding source for European banks and the market has reacted positively to the ECB's announcement. The ECBDA looks forward to further detail from the ECB on its implementation", said Carsten Mosch, European Co-Head Liquid Rates Trading at Deutsche Bank and co-chair of the ECBDA.
According to the survey, investors would most like to see improved B2C and interdealer liquidity and transparency addressed in 2009. The lack of liquidity was cited as one of the main reasons for spreads on covered bonds remaining wide in the secondary market. Mark Austen, Managing Director of ECBDA acknowledged, "The ECBDA and its members have been actively working on initiatives to improve interdealer-liquidity in the secondary market including its technical recommendations to platform providers such as Eurex to ensure liquidity improves in the weeks to come." “The market has witnessed some spread tightening in certain names in the secondary market and we expect secondary liquidity to improve as the ECB announces further detail of the buy-back in June,” said Dirk Burmeister, Head of Covered Bond Trading at UBS. The ECBDA expects a return to some form of electronic trading of covered bonds in the coming weeks which coupled with the ECB buy-back program can only be a good sign for the sustained recovery of this market.
Please find the full SIFMA/ECBDA survey here.

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