(Finance) – Theexcess spread available for Italian covered bond programs (Covered Bank Bonds, OBG) it is reducing, particularly for programs with a large proportion of unhedged fixed rate assets originating at low rates and new issues with higher coupons. Fitch Ratings states this in a report on the topic, observing that during 2023 the increased misalignments in interest rates between assets and liabilities have increased the loss resulting from asset and liability mismatches, resulting in a higher break-even over-collateralisation level.
Fitch highlights that the new series of covered bonds are issued at higher coupons than in the past, while the assets, mostly long-term fixed rate loans, are repriced more slowly and recent issues have not yet been added to the cover pools. “We expect excess spread pressure to gradually reduce as rates stabilize, assets are revalued and hedging pools are reconstituted with assets originated from 2022 onwards,” the research reads.
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