Commentaries

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Granite crumbles

Standard & Poor’s dropped a minor bombshell last night when it placed over 100 bonds issued by Northern Rock’s mortgage funding vehicle Granite on creditwatch negative.

Of course the rating actions are lagging the market and a lot of pain is already priced into the bonds. Some of Granite’s mezzanine BBB bonds are trading below 20 pence on the pound.

Nonetheless, there will be some psychological damage to the market if a large UK prime mortgage-backed issuer is severely downgraded. It certainly won’t do anything to help revive the primary market for UK RMBS, which some hope is set for a comeback. The good news is that so far the AAA rated bonds have not been placed on watch.

There’s little cheer to be found in S&P’s statement on the rating actions, which casts doubt over recent signs of recovery in the mortgage market, including house prices rises.

Unending pain in CLO land

Rating firms and analysts have been lowering high yield default forecasts in recent months, but there’s still plenty of pain in store for the banks, insurers (and taxpayers) who own collateralised loan obligations, funds that package leveraged debt.

Here are some cheery stats from Fitch Ratings, which is busy setting about downgrading more European CLOs.

Cat bondage

Catastrophe bond lovers and other insurance-linked securities enthusiasts should take a look at a report on insurance securitisation published today by the International Association of Insurance Supervisors (IAIS).

There is an interesting section in the report looking at the various cat bonds that have gone pear-shaped since the dawn of the market in the 1990s.

Bank of England gets creative

The Bank of England’s changes to the eligible collateral for repo operations announced yesterday contained a curious quirk: the Bank will now accept covered bonds backed by loans to small and medium sized enterprises.

Covered bonds are a kind of secured bank debt, backed by loans or mortgages. If the bank can’t repay the debt, bondholders can liquidate the collateral to get their money back.

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