Moody’s upgraded the rating of all Irish mortgage-backed covered bonds yesterday (Thursday) following its decision to change the rating anchor point for the instrument to reflect the introduction of bail-in frameworks.

The mortgage-backed covered bond programmes of three Irish issuers have been upgraded to reflect Moody’s change from using their parents’ senior unsecured rating as the anchor point to using their deposit ratings, which are one notch higher.

The affected programmes are those of: Bank of Ireland Mortgage Bank, upgraded from Baa2 to A3; AIB Mortgage Bank, upgraded from Baa2 (on review for downgrade) to Baa1; and EBS Mortgage Finance, upgraded from Baa3 (on review for downgrade) to Baa1.

Michael Spies, covered bond and SSA analyst at Citi, noted that the rating action places Irish mortgage covered bonds two to three notches above Irish government bonds.

“For several months, we‘ve been recommending overweighing Irish ACS against the benchmark and especially prefer the mortgage-backed covered bonds to the public sector covered bonds,” he said. “The positive rating action on the mortgage-backed covered bonds makes us stick to our recommendation, especially as negative rating actions within the public sector ACS market should not be ruled out in the medium term.”

However, he said that he did not expect significant spread reactions as a result of the upgrade.

“That said, we would not be surprised if Bank of Ireland ACS were well-sought in the near term,” he said. “For some investors, a single-A rating from one of the three big rating agencies can be a prerequisite to invest in such bonds.”