Best practice undermines overvalued covereds

By Bill Thornhill
16 Jul 2020

The European Commission’s best practice guidelines for the financial sector in handling the coronavirus crisis may challenge the safety mechanisms embedded in covered bonds, which have become fundamentally overvalued — especially in countries like Italy where payment holidays have been widely taken up — thereby instigating a sell recommendation from analysts at Barclays.

Earlier this week the European Mortgage Federation-European Covered Bond Council (EMF-ECBC) welcomed the European Commission guidelines, which represent the outcome of a high level dialogue between market participants that included the trade body.

The guidelines show that loan moratoria are an important policy tool. However, they also lead ...

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