Covered bonds have so far weathered the impact of the ECB’s QE programme without a significant loss of real money investors, market participants suggested at an ECBC plenary on Wednesday, but they expect CBPP3’s end to hit peripheral spreads.

In a panel moderated by Cristina Costa, senior covered bond analyst at Société Générale, at the European Covered Bond Council plenary in Barcelona, panelists said one of the key themes of 2015 has been market dynamics in light of the ECB’s extended asset purchase programme (EAPP).

“In terms of the market and execution, the real challenges this year have been in lower beta products,” said Derry Hubbard, head of FIG syndicate at BNP Paribas. “There has been a lot of price sensitivity in SSA market, which has trickled into the covered bond arena.”

Hubbard said that as yields have compressed, the number of investors looking into the asset class has become more limited.

However, he added that in the case of covered bonds, this has been mitigated by very preferential regulatory treatment, stating that the number of investors participating in covered bond deals and the size of order books this year are still in line with those of 2014.

“My judgment on this is, if anything, the covered bond product has passed this test much better than has much of the SSA arena, and certainly the spread volatility in covered bonds has been far lower than we have seen on the SSA side,” he said. “I think that’s reflected in the consistency of investor participation in these deals.”

Although acknowledging that the proportion of covered bonds being allocated to central banks had increased, he said a review of figures over a long time horizon did not show a significant shift in deal distribution.

“We have not materially lost other investors – real money investors – to the detriment of the market,” he said. “There’s been some change there but if you really delve into the numbers, it hasn’t been as radical as one might think.”

Henrik Stille, fund manager at Nordea AM, said he has not reduced allocation to covered bonds in response to CBPP3, instead buying more non-CBPP3 eligible paper and decreasing allocations of euro paper in favour of deals in US dollars and other currencies.

“It is more a change within the asset class and not an overall reduction,” he said. “Still covered bonds are rather attractive compared to senior unsecured bonds, for example.”

Stille said he is confident Nordea AM will remain in the covered bond market, adding that he believes covered bonds from core jurisdictions will become more attractive versus SSAs when the ECB steps down its purchases.

“The worst is behind us,” he said.

However, Frank Will, head of covered bond research at HSBC and chairman of the ECBC EU legislation working group, said that he believes that investors are more concerned than the picture painted by Hubbard.

Panelists also differed as to the impact on the asset class of the Eurosystem’s eventual exit from CBPP3 – something seen as the biggest potential threat to the covered bond market by Steffen Dahmer, global product manager for covered bonds at JP Morgan and chairman of the ECBC market-related issues working group, who said that, as a German, he views this as “a glass half empty”.

Will said there is a concern that countries that have benefitted the most from CBPP3 will be worst affected when the programme ends.

“Suddenly people will focus on the fundamentals again, and then those issuers with weak ratings will suffer the most,” he said.

However, Florian Eichert, head of covered bond and SSA research at Crédit Agricole and chairman of the ECBC statistics and data working group, was less concerned about the prospect of finding buyers as the Eurosystem stops buying under CBPP3.

“You find that in core countries only bank treasuries have been pushed out,” he said. “If you take away the ECB, all it takes to bring bank treasuries back is to get a price that is attractive versus SSAs.”

Meanwhile, in peripheral deals it is investors such as asset managers and insurance companies that have been pushed out of order books by the Eurosystem, Eichert said.

“You will need time and effort to get those guys back, and you will need opportunistic investors to fill the gap in the meantime.”

He forecast that core covered bonds could see a widening of 10bp-15bp – “not all that dramatic” – but that peripheral credits could widen some multiple of that, unless the respective government bonds tighten.

Eichert said that the greatest possible challenge to the market would be an extension of CBPP3 beyond September 2016 that he said would exacerbate any risks associated with the end of the programme.