US needs covered bonds

Author: Nicholas Pettifer | Published: 12 Nov 2009

With Moody’s highlighting the need for banks to issue longer term debt and new rules meaning it will be harder to get securitisations off balance sheet, there is an opportunity for covered bonds to flourish. But investors will want new legislation to guarantee their protection.

Yesterday, Moody’s revealed that the average maturity of newly issued rated debt in the US has fallen from 7.8 years to 3.2 years over the last five years. The UK has seen a similar trend and both systems will have to face more than $2 trillion of maturing debt before the end of 2012.

"If banks want to push out their average maturity, they will have to issue new debt at much higher interest rates due to the difficult climate and the longer maturities required,” said Jerry Marlatt, structured finance partner at Morrison & Foerster and inaugural member of...