SNB says more covered bond deals likely

More covered bond deals are likely as the Swiss National Bank seeks to balance liquidity within the countrys banking system, SNB board member Thomas Jordan was quoted on Sunday as saying.
"Refinancing through the bond markets is very difficult for the big banks because this market is practically shut. Therefore it is important that we in the Swiss market have a working instrument to balance funding," Jordan told Swiss newspaper NZZ am Sonntag.
"That is why we are actively supporting the covered bond transactions," Jordan said. "I assume that it (the instrument) will be used again in stages until the situation eases," he said.
Covered bond, or Pfandbrief, deals have enabled Switzerlands largest banks UBS and Credit Suisse to get cash from the countrys smaller, regional banks. Last month, the SNB said a covered bond deal to move cash from smaller banks to Credit Suisse and UBS, with a total volume of 4.75 billion Swiss francs ($4.16 billion), would be completed by the end of March. The SNB declined to say at the time whether it was buying the covered bonds. The deal was part of the SNBs efforts to support the economy and its banking system by helping to balance liquidity because money markets have stopped functioning properly as a result of the credit crisis.
Many of Switzerlands smaller banks have benefited from money outflows from larger banks, in particular from UBS, and have been under pressure from Swiss politicians to redress the balance by supplying bigger competitors with liquidity. The so-called Pfandbriefe are bonds backed with Swiss mortgages which meet a strict set of criteria.
Jordan also said the SNB had already started to buy bonds from private sector borrowers in Switzerland. The SNB said in its policy statement in March it may purchase franc bonds to relax conditions on the capital markets.
"Our first experiences have been positive. The main goal is that we can lower the impacts on the credit and maturity risks. That way we want to lower the refinancing costs for as wide a group of companies as possible," Jordan said. "The market for corporate bonds, excluding banks and insurers, has a volume of around 20 to 30 billion francs," he said. Switzerlands economy slipped into recession in the middle of last year, although it has held up better so far than those of its neighbours despite trouble at its largest bank, UBS as consumers kept spending.
The central bank gave a dire outlook, warning against the risk of deflation, when it cut its target for the 3-month Swiss franc LIBOR to a historic low of 0.25 percent on March 12.