The European Central Bank's (ECB) relaxed its haircuts for joint-Cedulas or Spanish covered bonds.

A new categorization is now easing the pressure on joint-Cedulas. Instead of falling under ABS, the ECB now classifies them, along with normal Cedulas single issues, as "traditional covered bonds".  

Dresdner Kleinwort analysts said that since the ECB previously classified these as ABS, they have suffered a significant increase in their haircuts when the central bank’s amended rules came into effect on Feb. 1 this year.

For the Jumbo issues of AyT, TdA, InterMoney or Pitch the disadvantage averaged around four percentage points. Variable-rate joint-issues which have been launched by Spanish saving banks since the start of the financial crisis especially for the purpose of ECB funding saw haircuts increased by 10 points.  

The new categorization of traditional covered bonds has moved these instruments from the worst liquidity category, category V, up to category III, and their haircuts have fallen to levels even lower than those which applied before the February changeover.

"Although this will reduce funding costs for the Spanish saving banks, we nevertheless doubt this will deliver any significant boost to the Jumbo segment in view of the persistent illiquidity of the market," Dresdner analysts said.

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