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’Irish secret liquidity, forever
Irish bank borrowings from Europe’s central bank in February — down €10bn, to €116bn (after much collateral swap shenanigans).
Irish bank borrowings from their own central bank, with collateral unacceptable at the ECB — up €20bn,
Running for covereds – but not for long?
The story of bank funding in 2011 so far, in a single chart:
The chart is from UBS banking analysts Alastair Ryan and John-Paul Crutchley. While bank debt issuance has been slightly ahead of maturities so far this year — most of it has come in the form of covered bonds.
Running for covereds
A chart to end a week full of talk of haircuts for senior bank bondholders. The below is from Citi’s Hans Lorenzen — showing senior unsecured financial issuance suffering:
And a hat tip to Hans for the title too.
Even more Spanish banking negativity
Lucky Spain.
Spanish banks’ funding via European Central Bank repo facilities dwindled late last year as the financials made use of a new (repo) agreement with LCH.Clearnet.
From Morgan Stanley:
Unlucky Spain.
The Irish covered bond exception
Here’s an interesting eurozone related bond trade for you.
While Irish debt may be looking unappealing due to the haircuts being applied, there is one possible Irish bond market that could still prove attractive:
The problem with Europe’s bail-ins
Here’s something to ponder while we wait for the European Commission’s consultation document on haircuts for senior investors in Europe’s banking debt.
It’s what all this talk of Basel III — plus burdensharing,
Basel liquidity rules, going neo-medieval
Can we talk a bit more about the scandal of Basel III allowing banks to give government bonds a zero risk weighting on their books? This time regarding Basel’s liquidity rules.
Actually, can we talk about the related global shortage of AAA-rated assets and what that means for sovereign debt as well?
Buried in recent regulations on Basel’s liquidity coverage ratio,
Structured, structured finance
October may be over, but it will go down in covered bond history (ahem) as the month which saw the debut of not one, but two covered bonds backed by RMBS.
That’s a debt security backed by Residential Mortgage-Backed Securities.
The insecure unsecured switch
This is a chart from the latest edition of the European Mortgage Federation’s monthly newsletter showing the yield differential between unsecured senior bank debt and covered bonds:
The following chart highlights what’s going on a little better.
A German bad bank, a collateral switch
Hypo Real Estate — the nationalised German bank and the only one to have failed this summer’s stress tests — passed a(nother) milestone earlier this month.
It transferred assets worth a nominal €173bn to FMS Wertmanagement (FMSW) — the big bad bank set up by the German state earlier this year specifically to take on non-strategic assets and ‘risk positions’ from Hypo.
The USD covered-bond-apalooza
Earlier this year we wrote about the unexpectedly stringent provisions for covered bonds to be imposed by Basel III, in particular with respect to their treatment in the liquidity coverage ratio and the net stable funding requirement.
An Irish covered-bond warning
This is why Barclays Capital’s warning over Ireland’s medium-term debt sustainability matters. Note that phrasing. Ireland will not be going to the IMF tomorrow — but there’s more uncertainty in the next few years.
Opportunities from the covered bond dislocation
SocGen analysts have turned their attention to the dislocation in covered bond prices vis-a-vis secured lending rates and government bonds.
Just as BarCap noted before them, they observe how “rich” covered bonds are currently trading with respect to the other markets.
The Big Pfffft and the Euro-peripherals
There’s a bluntness about this one that we kind of like.
Barclays Capital’s AAA Investor note looks at the problems posed by the rally in long-term bonds (sub specie deflationitatis) on Thursday:
These developments pose a problem to most yield-driven real money investors,
The unsecured vs covered bond anathema
Continuing FT Alphaville’s recent collateralised lending focus, we draw attention to the following trend observed in the covered bond market by Barclays Capital.
In their latest Euro Weekly note, the analyst team notes:
Back to the future, with US covered bonds
You’d think America was welcoming a new European immigrant to its debt markets from the way the House passed the United States Covered Bonds Act 2010 last week.
Here’s the abstract of a timely new NBER paper from University of North Carolina economic history professor Kenneth Snowden (emphasis ours):
The BoE’s phantasmic new web idea
Whoops.
This little market notice — from the Bank of England — slipped past us on Monday:
MARKET NOTICE – EXPANDING ELIGIBLE COLLATERAL IN THE DISCOUNT WINDOW FACILITY AND INFORMATION TRANSPARENCY FOR ASSET-BACKED
That’s the long-awaited outcome of the central bank’s consultation into the type of bank collateral it allows banks to use at its discount window facility (DWF).
These aren’t the facilities you’re looking for
On the day surplus liquidity (potentially) died, the ECB also made the following announcement about its covered bond purchase programme:
Which should come as no surprise, since we knew the ECB was only prepared to buy up to €60bn worth of paper until June 30,
Quantifying the ECB overdraft
Barclays Capital have done something clever.
They’ve used banks’ retained covered bonds and asset-backed securities — that is, loans that have been converted into ABS or covered bonds, but kept on the banks’ balance sheets — as a gauge for which financials could be using central bank funding facilities the most.
Is this the way the ECB’s bond-buying ends?
How’s this for a neat conclusion to the European Central Bank’s recent run of buying bonds from the eurozone’s troubled sovereigns?
Sell ‘em on to other governments via the eurozone SPV.
Compared to the €60bn Covered Bond Purchase Programme — due to finish at the end of this month — the ECB has never exactly said how its big sister,
Must Europe’s stress tests fail in order to succeed?
Alastair Gray of UBS has a pretty harsh response to the impending publication of stress tests on twenty-five EU banks.
He wants to see some failure in the mix:
Stress tests are not a panacea. Without a significant proportion,
What €56bn of bond buying gets you
The European Central Bank has purchased €56bn worth of covered bonds via the purchasing programme (CBPP) it announced back in May 2009. The result so far, via Deutsche Bank:
That’s spreads on peripheral Eurozone CBs back at pre-ECB buying levels.
Europe’s QE is sterilised and sensitive
Here’s something intriguing about the European Central Bank’s overnight statement.
It’s being lauded as European quantitative easing by some market commentators — but there’s a key difference to the kind of government bond-buying that has been carried out in the UK,
Iberian covered bond canaries
Ahead of a much-watched Spanish bond auction plus a key European Central Bank meeting on Thursday, here’s a sign that the Greek contagion effect has penetrated even the furthest corners of European debt markets.
Why doesn’t the UK Treasury like covered bonds?
The UK Treasury waded into the “are covered bonds a good liquidity buffer for banks?” debate on Friday.
EuroWeek’s The Cover reported the ministry’s feelings were that the bonds — largely deemed to be among the safest securities in the world — were not actually an acceptable asset.