Americas

The speed at which the US authorities have moved to create the preconditions for covered bond issuance has been nothing short of breathtaking. However, unless market participants can find the final key to unlocking the market, it will all have been in vain.

US Treasury secretary Hank Paulson yesterday (Monday) laid out guidelines for covered bond issuance in a co-ordinated move with regulators, current and potential issuers, and intermediaries that is aimed at kick-starting the covered bond market in the US. Some market participants are now hopeful that several issues could emerge this year, with three new issuers in the pipeline.

The Securities Industry & Financial Markets Association, leading broker-dealers and Tradeweb yesterday (Monday) announced plans to ensure that any covered bonds issued on the back of the Treasury’s Best Practices will have the infrastructure and support necessary to ensure a functioning, liquid market.

Moody’s has put Washington Mutual Inc’s senior unsecured Baa3 rating and WaMu Bank’s Baa2 rating on review for downgrade, making the possibility of a downgrade of the bank’s A2 covered bonds more likely.

The Treasury is expected to follow up on the Federal Deposit Insurance Corporation’s recent covered bond policy statement with an announcement next Monday that will firm up the US framework and could grant the instrument further special treatment.

The 4% limit on covered bond issuance as a percentage of total liabilities is one of the most restrictive parts of the policy statement released by the Federal Deposit Insurance Corporation last week. The Cover spoke to the Independent Community Bankers of America about their views on the cap, and whether pooled issuance was a prospect in the US.

Bank of America and Washington Mutual have welcomed the Federal Deposit Insurance Corporation’s final covered bond policy statement. WaMu told The Cover that it will adjust its collateral pool to seek FDIC eligibility and a boost for the ratings of its programme.

The Federal Deposit Insurance Corporation’s final covered bond policy statement has been given a lukewarm welcome by market participants and observers who had been hoping that the regulator would lay the foundations for a broader, larger market and give covered bond-holders even greater privileges than those promised in the interim version.

The Federal Deposit Insurance Corporation yesterday (Tuesday) afternoon revealed its final covered bond statement, which will be the foundation of the US covered bond market. However, the final version contained few changes to the FDIC’s initial draft and dashed the hopes of several interested parties.

The US authorities’ intervention to stop Fannie Mae and Freddie Mac from failing and other positive news today (Monday) has been welcomed, but appears unlikely to be sufficient to encourage any jumbo covered bond supply this week. It could, however, let investors sleep easier in their hammocks.

If the US covered bond market is going to achieve the goals held out for it by the Treasury and others, it will need to win around a key constituency that has so far only engaged minimally with the asset class: US investors. The Cover asked John Cerra, managing director at TIAA-CREF, for his views on developments in the US and whether he could be won round to the product.

The Federal Deposit Insurance Corporation is expected to release its final covered bond policy statement next Tuesday (15 July), when it holds its monthly board meeting. The move should pave the way for the US Treasury to take the initiative and come out with its own policy on covered bonds.