Salient to Investors:
Timo Boehm at Pimco has reduced bets on covered notes as Europe’s covered bond market falls out of favor as investors seek better returns on their risk – some highly rated alternatives including sovereign-backed and agency notes are much cheaper. Boehm said covered bond sales this year will fall short of forecasts.
Covered notes – which have been sold in Europe since the 18th century and are backed by mortgages and public sector loans – are a the most expensive relative to quasi-government bonds since 2008. Moody’s said covered bonds supported by loans to small and medium-sized enterprises are gaining traction as a new funding tool.
Lucette Yvernault at Schroder Investment Mgmt said investors definitely have appetite for covered bonds, which is why they are trading extremely tight.
Gareth Davies at JPMorgan Chase said lending is moving in the right direction in Northern Europe, but it’s from such a low starting point.
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