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FIGCovered Bonds

Credit curve flattening intact (for now)

Tier one covered bonds — those from national champion issuers — in Europe’s periphery are cheap to equivalent senior unsecured notes and with the market in short supply further outperformance is likely. Regulation on the Liquidity Coverage Ratio, declining issuance volumes and a further injection of central bank liquidity should fuel the move. But with the US rate cycle set to turn, the longer term picture is more unsettling.

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