‘Asymmetric' risk builds in covered bonds

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By Bill Thornhill
07 Aug 2019

Yields have fallen so steeply and spreads have tightened so much in the covered bond market that the distribution of risk has become even more ‘asymmetric’ said a major asset manager, who feared bank treasury accounts would become less inclined to buy now that 10 year covered bond yields are negative.

10 year euro swaps were yielding minus 0.15% on Wednesday and with many covered bonds trading close to or through swaps in this part of the curve, all but the most high-yielding are below 0%.

Until now the 10 year sector had been supported by bank treasury ...

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