Running for cover…

摘要

After a period of relative torpor - the two main themes in the office have been whether the ECB would succumb to quantitative easing, and where we would go to buy lunch - there was a brief period of frantic activity towards the end of the week. Admittedly, this had little to do with clients trying to buy or sell bonds, but came instead from a problem highlighted by one of the Swiss pension funds we service. Under the new BW2 law governing pension funds that took effect on July 1, asset-backed securities will be classified as alternative investments and placed in the 10% bucket reserved for such products. Initially, the rules have created a bit of a grey area for covered bonds such as German Pfandbriefe, French Obligations Foncieres and Spanish Cedulas. Until, that is. the regulator got his knickers back out of a twist and ruled that standard covered bonds wouldn't be dumped in the alternative bucket. That helps, but does not detract from the fact that even plain vanilla prime residential mortgage ABS has been lumped in by the Swiss with CDOs and whatever the hell else investment banks are currently dreaming up in an attempt to offer supposedly above-market returns for - yes, you've guessed it - below market risk. The mind boggles.