Fitch yesterday (Thursday) launched a quarterly publication aimed at providing market participants with information on covered bond rating trends, such as ratings distribution, buffers against issuer downgrades, and overcollateralisation cushions.

Hélène Heberlein, Fitch

Fitch’s Covered Bonds Surveillance Snapshot includes data from 129 covered bond programmes in 20 countries, on an aggregate and programme-by-programme basis, which it expects to be updated for every quarter, said the rating agency.

Fitch said that the new tool addresses the need to have more information on covered bond ratings following the increase in rating volatility that has been observed since 2010.

The rating agency noted how covered bonds have shifted from being an almost entirely triple-A rated asset class to being more heterogeneously rated instruments, with 68% of programmes now rated at the highest level. Sovereign downgrades explained most of the decline in programmes’ ratings, said Fitch.

The snapshot will highlight how covered bond ratings are exposed to issuers’ downgrades with a “Cushion Against IDR Downgrade” chart (see below), and also how overcollateralisation is used to compensate against potential rating cuts.

“With this snapshot, Fitch is aiming to provide an understanding at one glance of the main covered bonds ratings drivers,” said Hélène Heberlein, managing director of Fitch’s covered bonds team.

Beatrice Mezza, senior director in Fitch’s business and relationship management team said that the rating agency would welcome feedback from market participants on the publication.

The first edition can be found here (log-in required).

Covered Bond Downgrades Subject to IDR Downgrade (number of programmes)

Source: Fitch