CB reliance on ECB bodes ill for spreads, say investors

By Bill Thornhill, Jasper Cox
31 Jan 2018

Covered bond investors believe spreads may widen, as sovereign bond yield rises shave off the relative value offered by the asset class and the European Central Bank prepares to end its purchase programmes. But the additional tier one (AT1) market is still thought to offer investors in bank debt unmatched opportunity.

In the context of around €26bn of euro denominated covered bond supply so far this year, covered bond investors are somewhat surprised that spreads have held in and new issue premiums have remained narrow.

But the rise in government bond yields has started to erode covered bonds' relative ...

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