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FIGCovered Bonds

How the covered bond marker works

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Half of the Covered Bond Mark is derived from a survey of market participants. The other half is calculated using a range of key metrics — such as the deal’s subscription ratio, its performance, the granularity of the order book, and the transaction’s size.

Larger deals are generally harder to sell and for this reason a higher mark is given to bigger deals.

Investor demand for a deal is basically depicted by the subscription ratio. 

A deal’s performance can often be contingent on the quality of investors which, to an extent, is reflected in order book granularity.

A deal’s performance can give a clear guide to how well it was placed and this is typically reflected, not in the I-spread mid of the screen price, but the actual bid of a market marker on the deal.

See table below for more details on the intrinsic score.   

Auto fallibility

However the automatically calculated intrinsic score is fallible.  Large deals can sometimes hang around on dealers’ trading books affecting the performance of a jurisdiction.

Hugely oversubscribed deals may have been too cheaply priced. Or they may have been placed with investors who sell soon after launch, causing the transaction to underperform.

Less granular order books may not always be bad, especially when it comes ultra-long bonds that can perform well, because of the high quality of investors that bought them.  

And the market bid for a transaction a week after launch could hit a swathe of deals that were launched as the market repriced wider, as happened this year.

Your vote is needed

For this reason we ask you, the voting market, to take a look a very serious look at our survey and assign a mark to each and every deal based on timing, pricing and distribution.

We also ask that you spread the word by encouraging your work colleagues and clients to also vote.

Apart from your view of a deal, the only other two details we ask are for a name and an e-mail address. This shows that your vote is actually genuine.

The whole exercise doesn’t take long and it is completely and utterly confidential.

How it adds up

An average of the following four measures provides half the score. 

The remaining half is based on the average survey mark for each deal.    

Number of Investors

0-20                       0

21-39                     2             

40-59                    4

60-99                    4.5

100+                      5

Deal size

0bn-0.49bn         0

€500m                   3             

€750m                   3.5

€1bn                      4

€1.25bn                4.5

€1.5bn+                5

Oversubscription ratio

<1 0.                      0

1.0-1.09                2

1.1-1.29                3

1.3-1.59                4

1.6-1.99                4.5

2+                           5

Bid one week after launch

Positive Figure   0

0                              1

-1                            3

-2                            4.5

-3                            4.75

-4 or more           5

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