Market making put to the test

Covered Bonds

The EUR825 billion jumbo covered bond market held its own during the US subprime turmoil in the last quarter of 2007. However, it was not wholly immune to volatility and faced testing times as liquidity dried up, resulting in severe pressure on interdealer market making.

Concerns about an increase in write-downs on subprime US mortgages led to a crisis of confidence, and covered bonds became subject to the same scrutiny as mortgage securities, despite being more secure instruments.

The first signs

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