An increase in haircuts for retained covered bonds announced by the ECB yesterday (Thursday) has been seen by analysts as most relevant to peripheral issuers, although mitigants were also cited and an overall improvement in haircuts highlighted.

As well as benefiting from reductions in haircuts for many categories within the ECB’s collateral framework, asset backed securities were targeted by other measures aimed at helping the securitisation market.

At the same time, the ECB announced additional haircuts for retained covered bonds of 8% for those rated AAA to AA- and 12% for BBB+ to BBB- issues.

IM Titulizacion, which runs the IM Cédulas programmes as well as securitisations, said that the changes “represent a clear improvement in the treatment of ABS while penalising the use of retained covered bonds”.

According to Bernd Volk, head of covered bond research at Deutsche Bank, the use of covered bonds as ECB collateral increased from Eu401.1bn in the first quarter of 2012 to Eu468.8bn in the first quarter of 2013, while the use of ABS had declined from Eu407.3bn to Eu337.9bn in the same period.

“The ECB is trying to stem the increasing relative importance of retained covered bonds used for ECB repo,” said Volk.

Jan King, senior covered bond analyst at RBS, highlighted the impact of the move on some peripheral issuers.

“The additional valuation haircuts for retained covered bonds will predominantly affect Spanish and Italian issuers who have made use of this instrument to a larger extent, particularly last year at times when primary market access had been shut,” he said, although he noted that parts of these bonds have subsequently been redeemed.

Another analyst saw the additional charges for retained covered bonds as potentially having a strong adverse impact, with the 12% markdown affecting issuers of covered bonds of credit quality step 3.

“That will be pretty painful for those that are heavy users,” he said, “and there will be some pressure to replace the funding they lose.”

However, he also identified some mitigants, such as the ECB’s Emergency Liquidity Assistance (ELA), which could allow some issuers to cope with the changes.

He suggested that issuers could potentially release collateral from repos using higher quality assets, and then replace what the funding they have lost by submitting lower quality collateral to the ELA scheme, which has more lenient criteria.

Michael Schulz, head of fixed income research at NordLB, played down the impact of the higher charges for retained covered bonds, saying that although some issuers in peripheral jurisdictions will be affected national central banks will probably step in to mitigate the impact of the ECB’s move.

“I expect that national central banks will close any potential refinancing gap that arises, and that a significant negative impact will therefore be avoided,” he said.

Deutsche’s Volk said that despite the focus on the relative improvement for ABS, the ECB could continue to be regarded as a friend to covered bonds.

“In our view, the adjusted haircut schedule confirms the supportive stance of the ECB regarding covered bonds (by lowering haircuts for most non-retained issues) but tries to balance the use of retained covered bonds versus ABS,” he said.

And NordLB’s Schulz saw the changes to the collateral rules are a positive signal that the ECB is seeking to support private sector financing of the real economy.

“What the ECB is doing fits 100% with what the European Commission said in its green paper about getting credit flowing to infrastructure projects and businesses,” he said, “and doing so via market financing.”