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Uk Covered Bonds Market Is Suspended

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Friday September 14, 01:21 PM
Northern Rock - Cut and Run?
Decided to sell
Maxi ISA Withdrawal
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Credit crunch claims biggest UK casualty
LONDON (Reuters) - Credit markets took another hit as the Bank of England bailed out Britain's biggest casualty so far in the global credit crunch while policymakers differed over the best way to restore liquidity to money markets.
The world's biggest central banks have held off from raising rates in the past few weeks for fear of adding to market turmoil but China raised its key rates on Friday for the fifth time this year in a bid to curb inflation.
Northern Rock's troubles dealt a further blow to the UK covered bonds market, where sources said market makers suspended trading on Friday.

Don't panic, don't panic.......................... :o

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Northern Rock's going down. i tired to place a bet a paddies WH about northenrock going into admin in 2 weeks, paddys in north end road.

:blink: Bond market suspension? Surely this has just become more serious than hitherto expressed?

With Qs forming nationwide it is hard to see how they can stay in business for much longer.

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LONDON (Reuters) - Market markers in the covered bonds market suspended trading on Friday after mortgage lender Northern Rock -- a major issuer of such bonds -- was forced to ask the Bank of England for an emergency loan, market sources said.


if(window.yzq_d==null)window.yzq_d=new Object();window.yzq_d['K3LBYVf4axA-']='&U=13kgr8h49%2fN%3dK3LBYVf4axA-%2fC%3d200095410.201447293.202711235.200578085%2fD%3dLREC%2fB%3d200645265';"The market makers decided to quit for UK covered bonds after the Bank of England news," said a covered bonds analyst, adding that the duration of the suspension would depend on further developments related to Northern Rock.

"The market had started to recover but this will not help calm things down. It's not a good sign, it shows us how desperate Northern Rock was to get funding," the analyst said.

Northern Rock is the latest casualty of the credit squeeze sparked by the crisis in the U.S. subprime mortgage market.

The central bank's support -- the first time it has acted as lender of last resort in this way since becoming independent on interest rate policy in 1997 -- puts a prop under the lender, hit by a spike in the cost of borrowing from other banks as they become increasingly reluctant to lend.

Covered bonds are backed by pools of assets that remain on a borrower's balance sheet. The bonds are usually highly liquid and typically rated triple-A by ratings agencies, which helps reduce funding costs for the borrower.

The market has been disrupted in recent weeks however as investors have been forced to sell assets that are liquid and tradeable.

The market has been in particular focus following new deals by issuers from mortgage lenders such as Nationwide and HBOS offering higher returns than existing bonds.

HBOS's 2.0 billion euro (1.4 billion pound) 3-year bond had already started to reprice the market, even before the latest Northern Rock developments.

HBOS' outstanding 3.75 percent euro covered bond maturing in 2010, for example, had traded at a spread below 30 basis points over Bunds throughout its life until last month. It was at around 50 basis points over on September 13, according to Reuters data.

"What would you think if you have a 2010 bond outstanding trading at -5 bps and you come with a new bond at +5 bps?" Florian Hillenbrand, vice president of covered bonds research at HVB, said earlier this week.

"Issuers have made the investing public believe that they have a funding problem. The entire UK market is wrecked," he said.

The suspension has not come as a complete shock after a significant widening in bid-offer spreads related to intensifying problems in the commercial paper market and access to short-term funding.

"There has been lots of discussion about market maker obligations in the covered bonds market in the last few weeks and some widening of bid-offers. It has become very difficult," one trader said

Edited by crash2006

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Please review the following as we are one small step away from the greatest financial catastrophe in written history.

It may trigger a flight to safety. US Government Bonds. In the Great Depression the US was first in and first out. Gold does horribly in bad recessions and even worse in depressions. Food is where the smart money will go.

BTW--we may have to rename Great Crash 2 and call it Great Depression 2 if the bond market collapses. Then we are talking not billions but trillions.

My gut feeling is that Northern Rock is the tip of a very large Miracle Economy Iceberg. I read recnetly that 60% of UK PLCs wealth was based on HPI. If perception changes, as it is, and Merv's warning that house prices are opinion whereas debt is real becomes the plat du jour, the ensuing panic will fall like great boulders from the sky smashing banks and EA businesses as it they were balsa wood.

I get the sense that people have suddenly woken up in this country and they are realising that the miracle economy has been built on nothing but debt and that its all going horribly wrong. I can't imagine anyone who has been watching the news recently going ahead and buying a house in this market. Selling, yes. But buying--nuts.

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It may trigger a flight to safety. US Government Bonds. In the Great Depression the US was first in and first out. Gold does horribly in bad recessions and even worse in depressions. Food is where the smart money will go.

During the Great Depression, gold went up. On top of that gold does not default on you. Gold will go up, food as well.

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