By Richard Barley
LONDON (Reuters) - Last year's halt in interbank market-making in the 1.7 trillion euro ($2.5 trillion) covered bond market is unlikely to be repeated, the secretary general of the European Mortgage Federation said on Wednesday.
"It was done once, I don't think it's going to be done twice," Annik Lambert told the Reuters Housing Summit, as those parts of the market that have performed well seek to avoid being seen as problematic.
Credit market participants were shocked in November last year as the European Covered Bond Council, part of the EMF, recommended that traders suspend interbank market-making in covered bonds -- a key source of mortgage funding -- due to extreme volatility.
Covered bonds -- backed by pools of assets that remain on the borrower's balance sheet -- are typically rated triple-A by credit ratings agencies and had been viewed as highly liquid securities.
One problem was that the pressure on covered bonds was only being felt severely in certain sectors of the market.
Analysts said that investors were discriminating between those markets with a long track record and strong legislative support for covered bonds -- such as Germany and France -- and those seen as having less support, such as from the UK.
As a result, spreads on covered bonds from the UK widened sharply while those on German Pfandbriefe actually tightened on the year.
Lambert said the across-the-board suspension of market-making had reflected badly on those covered bonds that had not experienced problems, and that therefore it was unlikely to be repeated. Continued...
© Thomson Reuters 2008. All rights reserved.
| Japan Investment | Jul 01 - 2, 2008 | Country Summits |
| Global Real Estate | Jun 23 - 25, 2008 | Real Estate |
| Consumer and Retail | Jun 16 - 18, 2008 | Consumer Retail |
| Investment Outlook | Jun 09 - 12, 2008 | Financial Services / Exchanges |
| Global Energy | Jun 01 - 5, 2008 | Energy |
