From the New York Times today:
The covered bond markets in some European countries have suffered to some extent from house price declines, but the markets have not closed down as the private-label securitization market has in this country.
From the Financial Times last November:
Volatility is virtually unknown in the near 240-year-old market for Pfandbrief – or covered bonds as they are now more commonly named.
These mortgage and public sector loan backed bonds are seen as ultra-safe because of strict rules about the quality of their collateral and because investors also have recourse to other assets on the issuers’ balance sheets.
So when the industry’s governing council suspends market-making obligations between banks due to the rapidity of spread widening on such debt – as it did this week – observers are bound to fear the worst.
Jim Reid, credit strategist at Deutsche Bank, called the suspension of trading in the roughly €2,000bn market a “rather frightening spectacle” and said it was “cast-iron proof that we are in a credit crunch”.
Consider further that the Times was presumably referring to new issues. Cessation of secondary trading is a far more serious sign of disfunction than an inability to issue new paper.