Covered bond spread vulnerability questioned

Volatile exit
By Bill Thornhill
28 Jul 2020

The outlook for covered bond spreads has become less clear cut following last week’s historic agreement on the EU’s coronavirus recovery fund, according to analysts. But bank traders believe the market is well protected and think that the biggest risk to spreads is if there is a broader credit and equity market sell-off.

Nearly all covered bonds is negative yielding and spreads are now at levels last seen two years ago, suggesting there is very little scope for the product to perform. 

Indeed, the covered bond market could soon start to look expensive relative to the sovereign, supranational and agency (SSA) market ...

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