OREANDA-NEWS. Fitch Ratings has revised downward its refinancing stress assumptions for Cypriot residential mortgage loans financed through covered bonds. The 'B' rating spread level (RSL) is reduced to 650bps from 1,500bps.

The review was triggered by the upgrade of Cyprus' Sovereign's Issuer Default Rating to 'B+/Positive' from 'B-/Positive'. For details, see 'Fitch Upgrades Cyprus to 'B+'; Outlook Positive' dated 23 October 2015.

The lower RSL reflects a significant decrease in the observed yields of Cypriot government bonds since mid-2013, supported by the Cypriot sovereign's improving financial conditions and decreasing direct financial links to the Greek economy. Cypriot government bonds are trading at substantially lower levels than Greek government bonds. Fitch has considered the current low spread environment, as well as the limited size of the covered bond market and the lack of an RMBS market in Cyprus to assess the sustainability of the updated RSL for a Cypriot residential mortgage pool.
Separately, the RSL excel file has been updated with the 'AAA' assumptions for South Korea residential mortgages.

RSL assumptions are used to derive the stressed value of a cover pool, should the source of covered bond payments switch to the cover pool.