Citing credit and volatility issues the European Covered Bond Council halted Interbank covered bond trading.

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 in the covered bond market, which is dominated by German institutions that have almost a trillion euros of covered bonds outstanding.

My Comment: This is a very serious step. No, it’s not priced in.

“Quite a substantial part of the recent spread widening, particularly in the last three to four days, was driven by the mechanics of the inter-dealer market making obligation,” he said. “There is even some evidence that those bonds that are of high liquidity have been more heavily penalised than those which are less liquid.”

My Comment: Penalized is not the right word for it. Institutions are short on cash. The only way to raise cash is to sell something that has value. Perhaps what is not selling simply has little value.

“Due to general market conditions and the specific mechanics of the inter-dealer market making it even seems possible that inter-dealer market making will not be resumed this year,” Anhamm said.

My Comment: Halted for the rest of the year? Shhhesh. Do they think asset quality suppose to improve in the next month and a half? I don’t. There will likely be a flood of sell orders in January if they freeze the market this long.

European credit spreads have widened significantly in the last couple of weeks on growing concerns about bank writedowns on subprime-related exposures.

But increased market volatility this week has prompted Ireland’s AIB Mortgage Bank, a unit of Allied Irish Banks Plc, and Britain’s Abbey National Treasury Services, part of Spain’s Santander to postpone covered bond issues.

My Comment: As I said earlier today in Citibank SIVs Hit Norway Townships ABCP problems are turning up everywhere. Now we see they have completely locked up European Interbank Covered Bond Trading.

Is it any wonder gold is soaring and back over $800?

Minyan Peter was the first to point out the significance of Europe in regards to commercial paper. He wrote “As goes Europe so goes the world.” If true, the implications are both stunning and obvious. It time for everyone to take another look at Minyan Mailbag: Why Europe Matters More.

Mike Shedlock / Mish
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