Market-making is doomed: get used to it
The crisis in covered bond market-making last week has not been repaired by the European Covered Bond Council’s decision to persist with the system this week. The market should realise commitments are failing, and it would be better served with a freer system.
Market-making agreements are a famous selling point of the jumbo covered bond market. Dealers commit to trade the bonds with each other at a fixed bid/offer spread, depending on maturity.
The trouble is, when bad times come and spread widen sharply, banks are unwilling to keep buying covered bonds
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