Evolving Covered Bonds: Bloomberg's Market Insights with Rene Foertsch & Sven Gerhardt #11

In this episode of Mortgages Covered, Richard Kemmish, EMF-ECBC & ISMMA Consultant, welcomes Rene Foertsch and Sven Gerhardt from Bloomberg for a discussion on the evolution of covered bonds and the growing demand for data-driven market intelligence. Together, they unpack the latest developments in covered bond analytics, market transparency, and the innovative tools shaping the future of the asset class.

This Episode of Mortgages Covered explores:

• Bloomberg’s integration of AI tools and enhanced covered bond analytics capabilities.  
• Improvements in secondary market transparency through TRACE reporting.  
• Changes to Bloomberg’s League Tables methodology to improve accuracy and objectivity.  
• A new, transparent methodology for calculating and assessing new issue premiums. 

Transcript

SPEAKER_01 0:00

We're all familiar with the Bloomberg terminal, with the functionality that it gives to the bond market. But when it comes to covered bonds, there are some very specific needs, and Bloomberg has gone through a period of evolution of their product. I spoke to Rene Forch and Sven Gerhardt at Bloomberg about what the what it is that they've been doing recently. So, Rene, since we last spoke, what are the main developments being on the Bloomberg platform?

SPEAKER_02 0:30

Richard, you wouldn't be surprised, I think, if I tell you that there is a lot, yeah? And we need to we need to live up uh to the slogan that I think Sven and I, we kind of coined that phrase, Bloomberg, the home of covered bonds. Uh, it's our third year now that we have been uh sponsoring the ECBC. Uh and in terms of what is new, and I think we're gonna go into a little bit of detail of that while we are talking. Uh certainly you would expect AI. Yeah, AI is is is everywhere these days. It is also arrived uh on the Bloomberg system. Uh also, maybe you know, new tech in the sense of uh there is things that are now possible using Bloomberg that hadn't been possible before. I'm talking about a programming environment that we have been uh have made available to our users, where you can, of course, also look at you know analysis uh on the covered bond uh side. Yeah, I'll keep it at that because I think there is there is even more than that. Uh and our focus has been you know on covered bonds to make sure that the community also can appreciate that that asset class in particular is important to us. I mean, I will say, you know, and I and I admit uh Bloomberg as a large company, you know, there is there is always uh focus areas, priorities that need shifting. But in in my role in particular, I'm also responsible. In fact, I'm I'm getting measured on that by my boss, yeah, uh, to say, Renee, what have you done? Uh to also bring in touch uh our uh product managers uh with market people to say, you know, Richard would like to see ABC on Bloomberg. Uh let's make that possible.

SPEAKER_01 2:02

Well, one of the things you've had to adapt to is the secondary reporting by the trace engine. How have you adapted to that? How have you brought it into the Bloomberg functionality?

SPEAKER_02 2:11

So you're talking about uh the MIFIA uh review there, uh ESMA RTS 1 and 2 that uh went live uh in the EU uh 2nd of March, uh already gone live earlier uh for the UK. Uh to be honest, that was kind of an easy one for us because I could almost say we didn't have to do much or anything at all. There, um the uh reporting mechanisms had already been in place, the so-called APAs that are publishing uh the uh uh transaction data. Uh so there was to this stage nothing much to do for us, but just to make actually more our customers aware that this data is now available. It is a real, real significant change in the market. We've uh more or less arrived uh at a trace regime uh like you have it uh in the US. Uh we are uh thinking that from calculations, more than 80% of the trades uh in the fixed income market these days are getting real-time reported, and that is up from four or five percent uh before the second of March in the EU.

SPEAKER_01 3:10

Yeah that's one useful tool for people. There are a couple of other useful tools, Sven, that you've introduced recently. One is you've upgraded your league tables, and that's I'm an ex DCM banker. I know how important it is to be able to manipulate league tables. Tell tell me about what you've done there and how it's more objective now.

SPEAKER_00 3:26

Yeah, um, I mean, we basically were listening to the market. Uh, we got uh on our um uh own CoverPont forum last year some uh good comments about and um so the the major change we we now focus on the euro syndicated issuance, uh before it was across um all currency, which particular due to the uh large Swiss market um uh had some influence and um um because of the structure it it it was not the right right place to be in in the syndicated table. And then um the other challenge is uh to detect retained deals. Um we more or less rely that uh issuer tell us if it's a retained deal. Uh sometimes we have to ask if it's obvious um and uh rely on them that uh they are honest about and and and have that. So uh since we cannot detect or prove all of the retained ones, uh, that the major change were here that minimum two uh involved parties.

SPEAKER_02 4:23

The rule is if I if I might say if it smells like a retained deal, it probably is a retained deal. So we see them coming in, but as Sven says, we need the actual confirmation by the issuer.

SPEAKER_01 4:33

Yeah, that's one of the biggest changes in the market overall um recently. Yeah, um another thing I'd like to ask about is the new issue premium calculation. Syndicate desks always like to give their own numbers about what the new issue premium on a transaction was. It always likes to be a small positive number. Not always the case. Sometimes there's a bit of data manipulation. How have you arrived at a methodology for calculating that?

SPEAKER_00 4:56

It's it's more aesthetic approach, and uh there we differentiate ourselves to the market, that we have like uh um a set of rules, how we derive to uh to the new issue premium. And maybe you want to elaborate on that.

SPEAKER_02 5:09

Uh it is um, I think it's it's really useful uh what we offer there. Uh the downside so far has been that many of our customers aren't even aware that we provide this calculation, A. Uh, and B, uh it's not active on uh all bonds that get issued. Even some benchmark bonds, they don't have the calculation in the background. That is a big topic where I'm working together with our product management at the moment. We do want to enhance that. Uh so what do we do? Um we freeze the market, so to say, so the issuer curve plus the swap curve, etc., uh, on the day of the announcement. So before a bond even gets announced into the market, uh we freeze that data. And then when pricing occurs, we basically calculate the distance. Um, you could say, you know, nowadays some sometimes a bond is even announced in the morning and in the afternoon it already gets gets gets allocated, yeah. But if there is some time in between, especially in today's markets, you could say there is shifts in the market, for sure. Yeah. So there's always a pro and a con for whatever methodology you might use. Uh, but this one we feel is is very independent. And yes, at times you will then say see that the bankers might say there was actually a premium, and then we go back and say, no, there was no premium at all. So it is it is an interesting solution, I think.

SPEAKER_01 6:17

We love objective, we love transparent methods like that, even if it occasionally annoys a few people. Update us in Seville about how that goes, but for now, thanks thanks very much for speaking to us.

SPEAKER_02 6:27

It was a pleasure, Richard. Thanks, Richard.