Interbank Covered Bond Trading Halted on Volatility

Interbank Covered Bond Trading Halted on Volatility

www.reuters.com

Renewed credit turmoil and volatility led the European Covered Bond Council (ECBC) on Wednesday to suspend inter-bank market-making in covered bonds until Monday, Nov. 26. The move is a sign of the stress...

Covered bonds... are usually highly liquid and typically rated triple-A...

"It gives the market time to think." ... it even seems possible that inter-dealer market making will not be resumed this year,"

(visit the link for the full news article)


Related News Links:
www.bloomberg.com
business.timesonline.co.uk

"A sign of stress"? !!

Hello?

A normally highly liquid market that is rated triple A and valued in the trillions of dollars is frozen as an emergency measure? Maybe until the end of the year?!

"Time to think"?

How about time for sell orders to start piling up?! If trading resumes on Monday as anticipated watch for a massive movement in this market.

Notice this little paragraph?

The ECBC set up the 8-to-8 Committee, consisting of the eight largest representatives of issuers and market-making banks, in September. It acts as an ad hoc advisory body to help restore trading stability in times of market disruption.

An emergency committee (first time I hear about it) set up as a result of the credit crunch is taking this bold step. Looks like the European version of the Plunge Protection team at work.

Some further quotes from the sources listed below:

A key source of liquidity for cash-strapped banks – the covered bond market – appeared to be closed off yesterday after trading between banks in the secondary market was officially suspended and the mortgage bank Abbey was forced to abandon a new issue of bonds.

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,"...

"There's a crisis of confidence for everything but AAA government bonds"...

"Conditions have really weakened over recent days,"... "Most investors are not willing to invest in the current volatile market."...

The first covered bond was issued in 1769 when King Frederick the Great of Prussia needed to rebuild the country after the Seven Years War against Austria an d Saxony.

This all sounds very ominous, especially when combined with the fact that the credit crunch has finally reached Asia Credit "heart attack" engulfs China and Korea.

Are your seat belts fastened?
Got airbags?
.

www.reuters.com
(visit the link for the full news article)

so when the mechanisms arnt working their answer is to just shut it down??.

they will never solve the problem by burying their head in the sand and pretending everything will be alright.

i see this as a symptom of a wider problem,careless creation of debt.

[edit on 22-11-2007 by welivefortheson]

I'm expecting to see the 500 point circuit breakers kick on Wall Street at some point in the near future. I've always thought that they would be ineffective in a real meltdown. Like you stated, it not only gives time to 'think' but also to pile up a flood of selling. At which point I guess they try to keep them closed indefinitely. Which inspires a great deal of confidence I'm sure!

I've searched for any information on whether or not this bond market will be re-opened in the morning but haven't found anything.

Has anybody heard whether or not trading will resume as expected or will it remain suspended? If it remains closed then the situation is definitely worse than we've been led to believe and the markets may react accordingly.

I also found this little tidbit of information:



So, late on Friday night (after everybody went home for the weekend ), the ECB announces it will pump more money into the system this week without saying how much?

I suspect they are waiting to see just how bad of a start to the week we are going to have. If Interbank Bond Trading doesn't resume, expect the liquidity injection numbers to be quite high.
.

[edit on 11/25/2007 by Gools]

Well I found the original press release here:

ECBC Press Release
... members of the ECBC’s 8-to-8 Committee will consult with their issuing and marketmaking peers in order to collect feedback from the market ahead of the Committee’s next meeting which will be before noon on Monday the 26th."

So the announcement will only come after the meeting on Monday. I bet there was lots of 'overtime' logged this weekend.
.

Another thing that is not getting much media time is that banks are ratcheting up thier withdrawal and transfer limits.

Transfer Limits Have Potential To Block Run On Bank Mineset

Europeans are not the only ones worried:

Japanese Shift Cash Out of U.S. Investments NYTimes

Many in Japan are starting to speak of “quitting America,” but they are not talking about a rise in anti-American political fervor. Rather, they mean a move away from American investments that is altering global capital flows and helping to weaken the dollar.

The global economy is cracking and crumbling all over. Northern Rock is unlikely to be the only bank run in the near term. I wonder who thinks a bond trading freeze has anything to do with the term free market? It looks like financial sector panic mode to me.

A Generalized Meltdown of Financial Institutions Global Research


[edit on 25-11-2007 by Regenmacher]

Update:

ECBC recommends resumption of covered bond trading

LONDON, Nov 26 (Reuters) - Inter-dealing market-making in the covered bond market should restart at 1330 GMT on Monday after a temporary suspension last week due to renewed market volatility...

In light of reduced liquidity in debt markets and sharp moves wider in bid/offer spreads, the ECBC said market makers are now obliged to make a minimum of 5 million euro ($7.4 million) by 5 million euro markets to one another on three times the normal bid/offer spreads.

This new condition will be in place until market making closes on Dec. 14, the ECBC said.

Move along, nothing to see here?
.