Seattle Bubble Forum Archive

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If I am understanding the situation correctly, European mortgage covered bonds are similar to U.S. mortgage backed securities (MBS). Trading was stopped because:

....."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."...
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Translation - We can't sell these bonds because the real market value of these bonds will then be established and the "absurd situation" of devaluing these bonds from their fantasy "mark to model" values will occur.
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From Calculated Risk:
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The European Covered Bond Council recommended banks resume inter-dealer market making on Monday, following a temporary suspension last week, thanks to a calmer tone in credit markets.

The ECBC's decision to halt trading last Wednesday reflected signs of stress in the covered bond market, which is dominated by German institutions that have almost a trillion euros of covered bonds outstanding.

"Following more normalised trading activity in the last 2.5 days, the Committee recognises the importance of returning to the inter-bank market making system that is a key feature of the Covered Bond market," the ECBC said in a release on Monday.....
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