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Wednesday, November 21, 2007

Europe Suspends Mortgage Covered Bond Trading

by Calculated Risk on 11/21/2007 12:30:00 PM

From Bloomberg: Europe Suspends Mortgage Bond Trading Between Banks (hat tip Yal)

European banks agreed to suspend trading in the $2.8 trillion market for mortgage debt known as covered bonds to halt a slump that has closed the region's main source of financing for home lenders.
``We are in a deteriorating situation,'' Patrick Amat, chairman of the Brussels-based [European Covered Bond Council], said in a telephone interview. ``A single sale can be like a hot potato. If repeated, this can lead to an unacceptable spread widening and you end up with an absurd situation.''

Covered bonds are securities backed by mortgages or loans to public sector institutions. Banks designed the notes to offer more protection to bondholders than asset-backed debt by making the borrower liable for repayments if the assets underlying the securities aren't sufficient. They typically have the highest credit ratings.