“This is despite the easing of the eurozone crisis and the much lower risk of a break-up as well as the currency bloc`s exit from recession. The Negative Outlooks on the covered bonds mainly reflect the Negative Outlook on many bank Issuer Default Ratings (IDRs) and the challenges faced by mortgage markets”, Fitch points out.

Given the significant downward migration of ratings from peripheral countries since 2010 and the current economic stabilisation, Fitch sees little room for further downward potential. The rating agency also notes that in countries where the 'bank resolution' legislative agenda is further advanced, including prospects for bail-in of senior unsecured creditors, support-driven bank IDRs could come under pressure. However, covered bonds are expected to be exempt from a bail-in, which is credit positive compared with senior unsecured debt.

Source: InCyprus