Paul Guire - ICAP Paul Guire is head of ICAP’s office in Frankfurt, where his main responsibilities lie in promoting the securities operations in Europe. He joined ICAP in 1979 and has remained with the group since that time, heading various desks including US$ CD’s, US$ FRA’s, euro repos and emerging derivatives. Carlos Stilianopoulos - Caja Madrid Carlos Stilianopoulos was made deputy chief executive at Caja Madrid in May 2008. Since May 2007, he has been in charge of the treasury, capital mar

As 2008 wore on and banks found it increasingly difficult and costly to fund themselves, covered bonds were touted by industry professionals and politicians alike as the panacea for the liquidity drought. But they have also proved susceptible to the illiquidity that has ravaged financial markets, especially in the second half of the year. Despite the global aversion to bank and mortgage-related risk, issuance of jumbo covered bonds has dipped in Europe this year: at the time of writing, the prim

IFR: This brings us on to the next point of the discussion: what will be the effect of government guarantees on covered bonds? Reusch: This is an interesting point, because the idea behind these guarantees, to my knowledge, is to ensure that the senior unsecured market will get back on track. You have already identified certain assets on the balance sheet which serve as collateral. Therefore regardless of whether a bank takes part in the guarantee scheme or not any given issuance has an explicit

IFR: So have we seen banks use covered bonds more for liquidity purposes than for the financing of assets? Stilianopoulos: It is a mixture really. In the last 12 months we are using covered bonds for funding purposes, certainly. Up to 12 months ago it was the contrary; we were doing 10, 20, even 30 year covered bonds, basically to match with our assets. It has been mentioned that covered bonds should be very long dated, and perhaps, that is the niche they had in the market. However, when we did

IFR: I think they are called "trapped longs” or caught at higher levels? Guire: Well, there are some long dated bonds that are being called "bid to maturity" and "hold to maturity"! So for some end investors, the bonds are buy-to-hold, and that is not a good development. The vdp’s timing of re-introducing inter-dealer market making was unfortunate – through no fault of its own, it ultimately looked appalling. At that point, at least the German part of the market was trying to stabilise, notwiths

IFR: What is the current situation with liquidity and the secondary market? Nicolas Poli (Merrill Lynch): At the moment covered bonds are like all the other markets, in that the underlying markets are undoubtedly facing a problem of liquidity. This is mainly due to the fact that everyone needs to raise cash at the moment, and hence we are seeing sellers of covered bonds. This in turn is why we have seen a massive widening of spreads, although this is true also of the underlying markets. Peripher