Investors Are Dumping Covered Bonds

European institutional investors are now dumping their covered bonds, as the European Central Bank is about to close its purchasing program.

“Investor demand has been wilting given the record €126 billion issuance over the first half of 2010.”

Societe Generale

Investors now rush to sell covered bonds as the European Central Bank prepares to pull the plug on program, according to Structured Finance News.com.

Covered bond issuance has been strong over the past five trading days on the back of banks looking to take advantage of the final days of the European Central Bank’s (ECB) purchase program.

The program ends in the middle of this week.

Companies in Europe have so far sold €34.9 billion euros ($43 billion) of covered bonds in June, already more than double May’s sales of 11.1 billion euros, according to data compiled by Bloomberg.

Sales totaled 169 billion euros in the last six months compared with €233.4 billion in 2009, Bloomberg data showed.

Societe Generale analysts said that investor demand has been wilting given the record €126bn issuance over the first half of 2010.

It’s likely that as a result issuance activity will slow down, as the markets are traditionally closed from mid-July to end-August.

But market economists, including Barclays Capital, Nomura International and Citigroup , have called for the ECB to extend the life of its program given the developing sovereign debt crisis.

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