Cortazar, BBVA AM: We see little value in investing in the core covered bond markets as spreads have become too tight. Though spreads have come in a long way in Spain and Italy they remain quite wide versus Germany and core Europe. But reforms are on the way and they will be implemented, which means over the longer term that spreads still have room to perform versus the core. A lot of challenges lie ahead but I think the worst is behind us so I am relatively positive on Spain.
Denger, MEAG: Taking into account the willingness of politicians and central bankers to strengthen the eurozone, current levels do not show the wrong picture. But the confidence to invest is all about trust. As an investor you need to make your judgment as to whether you are playing for the survival or death of the eurozone as it is currently set-up.
Goldfischer, CA-CIB: As things normalise you will continue to see covered bonds perform, but this will be more a function of the overall market than anything else. I think we have reached a relatively tight level, but in the case of the periphery, I think that spreads will continue to tighten.
Eichert, CA-CIB: Some of the peripheral bonds like Bankia or some of the multi-Cédulas are still very wide. And even if you take into account higher than expected pool losses or the increased probability of the bank’s default, you still come up with a positive expected return so leaving out technical factors and rating considerations, there’s a strong case for convergence between core and peripheral markets.
Burmeister, DeAWM: Economic fundamentals have always been a little in the background due to central bank liquidity. Though this situation might last for a while longer things can change very quickly so I wouldn’t dare to say the periphery has completely decoupled from fundamentals.
Goldfischer, CA-CIB: It’s true that Spain will not dig itself out of its economic problems for quite some time. But if the economy doesn’t worsen and it’s able to stabilise, I think people will go back into the periphery. And as they get more comfortable with covered bonds, they will rally so I’m also relatively constructive.
Lavastre, CDC: Our feeling is that the rally was too quick and has come too far. Even though we have seen some technical improvements, the economic fundamentals are often bad: unemployment rates are at their highest and non-performing loans are still increasing.
EUROWEEK: Do you think there are catalysts for a renewed spread volatility?
Juhasz, World Bank: We also see some black clouds gathering over Europe in Greece. I wouldn’t be surprised if we will again see a massive flight to quality leading to a Bund rally. I think the problem will come not from the banks or covered bond pools but mainly from the sovereign markets.