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3 年前
On your marks, get set: ECB to start covered bond buying on Monday
2014年10月17日 / 下午3点08分 / 3 年前

On your marks, get set: ECB to start covered bond buying on Monday

LONDON, Oct 17 (IFR) - The ECB will launch its much anticipated third covered bond purchase programme on Monday, in a bid to open up bank lending in the eurozone.

According to market sources, the ECB, along with national central banks, will buy up chunks of secured bank debt, primarily from peripheral banks.

"It will be good to see a bit of buying from the ECB next week but, as is the case with everything, it's all about how much and how often," said Ralf Grossmann, head of covered bond origination at Societe Generale.

The ECB has previously stated it could buy as much as 1trn of ABS and covered bonds as it seeks to expand its balance sheet and boost the economy, although it did not say how close it will get to that number.

News that the ECB would begin buying covered bonds in both primary and secondary markets was first announced in September and has driven investors to aggressively place orders in the product.

"The market expects CBPP3 to start next week, which was the reason for peripheral covered bonds widening only marginally," said Bernd Volk, head of covered bond and SSA research at Deutsche Bank.

Over the past week, the equity market suffered one of its biggest losses in three years, Additional Tier 1 bonds continued to trade down and senior unsecured bond also widened by around 12bp, while covered bonds have only moved a couple of basis points.

Grossmann said that the anticipation of ECB buying meant that the market has held onto secured bank paper despite the current market woes.

"In the past week, we've seen pressure all over the market, except for covered bonds," he said.

This support has driven spreads tighter on all covered bonds but particularly eurozone paper, which has allowed the region's banks outside of Germany to price paper through mid-swaps for the first time.

However, Volk expects peripheral lenders to be the biggest beneficiaries of the ECB's plans. A 10-year covered bond from troubled Italian lender Banca Monte dei Paschi di Siena has already rallied and is more than 70bp tighter than where it was before the ECB programme was announced.

Deutsche Bank's Volk wrote that while the programme would be supportive for spreads of Italian and Spanish covered bonds, it might not have as much of an impact on core countries' covered bond issuers.

To qualify for the new programme, bonds must be eligible for monetary policy, be euro-denominated and issued by eurozone banks and have a minimum rating of Triple B.

Bonds failing to meet those criteria, such as Greece and Cyprus, will be required to have the maximum achievable rating in that country and the issuers will have to update the ECB on a monthly basis regarding asset quality.

These bonds will also have to have a minimum overcollateralisation of 25%, or alternatively have at least 95% of the assets denominated in euros, and claims must be against debtors domiciled in the euro area. (Reporting by Aimee Donnellan; Editing by Helene Durand and Philip Wright)

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