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Survey shows investor appetite for covered bonds

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Investors, including asset managers, commercial banks, pension funds and other institutional buyers, continue to have appetite for covered bonds, according to a survey by the European C

Investors, including asset managers, commercial banks, pension funds and other institutional buyers, continue to have appetite for covered bonds, according to a survey by the European Covered Bond Dealers Association.

The survey found that 64 per cent of respondents were looking to increase or maintain their investment in covered bonds for 2009.

The new issue market has picked up significantly for covered bonds. Last week was the busiest this year for covered bonds with five transactions priced totaling EUR6.5bn. Total issuance year-to-date increased to EUR22.9bn, according to research at Barclays Capital.

"Covered bonds remains an important asset class for funding purposes as demonstrated by the increase in new issue activity we have seen this week," says Torsten Elling, head of covered bonds syndicate and trading at Barclays Capital and co-chair of the ECBDA.

Results of the survey, completed prior to the announcement of the ECB buy-back program, showed differing opinions from investors on whether spreads would tighten or widen this year, indicating prior uncertainty by investors on the direction of the market. 

The announcement by the ECB to purchase EUR60bn of covered bonds has added further positive momentum to the market which has seen new issues well received and priced at the tight end of initial range, according to BNP Paribas.

‘The ECB stance has actually reopened the market by rebalancing clients interests and providing a backstop bid for covered bonds holders. This has brought back to the primary market several clients which were staying on the sideline and waiting for such a signal to reenter,’ says Sebastien Gianfermi, head of SAS and covered bonds trading at BNP Paribas.

According to the survey, investors would most like to see improved business-to-consumer and interdealer liquidity and transparency addressed in 2009. The lack of liquidity was cited as one of the main reasons for spreads on covered bonds remaining wide in the secondary market.

Mark Austen, managing director of ECBDA, says: "The ECBDA and its members have been actively working on initiatives to improve interdealer-liquidity in the secondary market including its technical recommendations to platform providers such as Eurex to ensure liquidity improves in the weeks to come."

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