Covered bonds smaller than Eu1bn will as of the end of this year be eligible for inclusion in the iBoxx euro covered bond index run by Markit, the index provider announced on Friday as part of an annual index review.

Markit said that it has reduced the cut-off level for inclusion of covered bonds in the iBoxx EUR Covered index from Eu1bn to Eu500m, effective 31 December and applicable to bonds issued before and after that date.

The index provider said it had reviewed the threshold “in light of increased issuance of smaller-sized covered bonds in the range of Eu500m-Eu1bn since the financial crisis in 2008”.

Covered bonds with an issue size between Eu500m and Eu1bn will only qualify for inclusion in the indices if they have at least three lead managers (excluding the issuer), said Markit. This is intended to eliminate bonds with a high likelihood of being privately placed or tightly held, it said.

The European Covered Bond Council market related issues working group had lobbied for the change with Markit (click here for previous coverage). Richard Kemmish, head of covered bond origination at Credit Suisse who chairs the working group, said that the new cut-off level brings the covered bond index in line with iBoxx securitisation and senior unsecured indices.

“It’s clearly a good thing as it will increase demand for smaller sized deals and reduce the arbitrariness of that line in the sand,” he said. “The change should make it slightly easier for smaller issuers to issue and be flexible about deal size.”

Whether or not deals were for Eu1bn or less had already become irrelevant with respect to league tables and market-making, added Kemmish, with indices the only area where a distinction in the treatment of certain bonds was based on deal size.

“With this change you can also cure the idea that a smaller deal is a failed deal,” he said.