Moody’s Investors Service sees “encouraging” signs for the emergence of a New Zealand covered bond market following a proposal from regulators for a comprehensive legal framework and the first-time issuance this year of this product.

This past October, the Reserve Bank of New Zealand (RBNZ) issued a regulatory framework to foster covered bond issuance, which in Moody’s view “will provide more certainty and help mitigate the primary risks [the agency] would take into account in [its] rating process.” The agency said the broad scope of the proposed legislation could be a credit strength as well, as it might be telegraphing the instrument’s systemic importance. 

The RBNZ expects the legislation to be enacted later in 2011, but issuance is not contingent on regulations as evidenced by two deals this year from the Bank of New Zealand. The first, in June, was a debut for the country, while the second tapped the European market for €1 billion last month.

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