Covered bond upgrades outnumbered downgrades by 4.6 to 1 in 2014, Moody’s said yesterday (Monday), with 51 programmes having been upgraded by the rating agency and only 11 downgraded, while peripheral issuers were the main beneficiaries.

Moody’s said an improving regulatory and macroeconomic environment in Europe was responsible for the strongly positive rating trend, with 21.8% of the 233 programmes it rates benefiting from upgrades – by 1.7 notches, on average – while 4.7% were downgraded – by an average of 1.5 notches. The ratings of programmes in the Americas and Asia Pacific remained unchanged, the rating agency added.

The strongest performing region in terms of Moody’s covered bond ratings was the euro periphery, the agency said, with all covered bond programmes from Ireland and Cyprus and 80% of programmes from Greece upgraded, for example.

Austria, meanwhile, was one of the few countries to experience more downgrades (25% of programmes) than upgrades (6%).

Covered bond programmes rated Aaa at the start of 2014 were the most stable, Moody’s added, with about 3% experiencing rating changes during the year. Covered bonds rated Ba2 and Caa2 at the start of the year were the most volatile, with all these bonds experiencing ratings change.

The changes of 2014 left 77.3% of covered bonds with ratings of A2 or higher at the end of 2014, up from 70.8% at the start of the year. The proportion rated Aaa rose from 51.5% to 51.9%.

Moody’s has a positive outlook for covered bonds for 2015, noting in an outlook report published in December that improving sovereign credit quality in mainly peripheral European jurisdictions is a credit positive for many programmes.

The rating agency added that positive regulatory developments – such as an exemption from bail-in under the Bank Recovery & Resolution Directive and preferential treatment in terms of Liquidity Coverage Ratio requirements – are for covered bonds likely to outweigh an expected weakening of government support for failing banks in 2015.