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FIGCovered Bonds

On hold until Wednesday, LTSB to issue $ RMBS

Markets remain on hold until Wednesday in anticipation of a comprehensive EU bailout plan. Two options on the table, which could both be pursued in tandem, involve insuring the first loss 25% of peripheral sovereign new issuance via the EFSF. Another plan seems to involve setting up a leveraged SPV using private and public sector funds (such as China and the IMF) to buy sovereign bonds in the secondary market and create a firewall to protect peripheral nations in anticipation of a hard Greek default involving a potential 60% haircut. It is likely that such a plan would be provisional in nature and therefore subject to full agreement by parties involved, including rating agencies.

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