Thomson Reuters IFR Roundtables
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Safety, transparency and liquidity – these are the three pillars of the covered bond industry. Like a financial Parthenon, the Pfandbrief market enjoys the grandest and oldest pillars of all, and provides the benchmark by which all other covered bond markets are measured.
Once a relatively sleepy backwater of longer-term project and small-scale FI financings, the loan markets of the Middle East are now global and booming. But as hydrocarbon-fuelled corporates and sovereigns seek to diversify and pick up assets around the world using leverage, the global credit market is facing its severest liquidity test since the early 1990s. Some say the malaise is even more profound than during the last oil shock.
The landscape of the European government bond markets has remained in essence unchanged during the turbulence of the last nine months. All sovereign issuers have been able to rely upon their credit credentials to attract investors into financing their borrowing programmes. While sovereigns, supranational and agency issuers have found a willing and receptive audience, covered bond issuers have been spurned. As a result, the secondary market has all but disappeared for some issuers.
On a crude volume judgement alone it would be easy to conclude that the global credit crisis has bypassed Russia entirely. According to Thomson Financial, in the first three months of the year, Russian firms signed loans worth more than US$18bn making the country the third largest market in Europe. Although this figure is lower than the year prior it is impressive given the collapse in the bond market and general fall in global lending.
Although the non-core bond markets continue to be dominated by borrowers from the SSA sector, it is an area that is fast becoming key in other issuers’ thinking, not least because of the disruption they have experienced to their plans in the more developed currencies.
With the credit and liquidity crises continuing to be played out on the global stage, borrowers’ access to capital has become an increasingly core subject. Even as the situation persists, regulatory bodies are forging ahead with their efforts to lay the foundations of all-encompassing legislation, drafting pre-prescribed directives regarding hybrid capital, transcending jurisdictions and issuer types.