UK covered bonds to hold tight as Brexit digested

Brexit fotolia
By Bill Thornhill
26 Jan 2021

UK covered bonds are trading close to where they would be expected, given their new regulatory treatment outside the European Union. And while euro supply prospects this year could improve on last year’s paltry sum, the vast swathe of bonds redeeming in the same period translates to a technical imbalance which will support spreads.

On January 1, the risk-weighting applied to UK covered bonds doubled to 20% for European bank investors.

The bonds were also demoted to category 2A from 1B under the Liquidity Coverage Ratio. This effectively meant they became less efficient for banks to fulfil their regulatory liquidity ...

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