OREANDA-NEWS. Fitch Ratings say around two-thirds of investors polled in the agency's end 2015 covered bonds survey said they are switching to other asset classes than covered bonds in response to the European Central Bank (ECB) purchase programme. But a drastic change in asset allocation is not expected in the next 12 months with 41% of the respondents likely to maintain their covered bond holdings.

Declining secondary market liquidity (74%) and European quantitative easing (60%) remain the top challenges for the covered bond market. The health of banking sector (20%) and sovereign risk (17%) are now ranks behind, in line with Fitch's Stable Outlook for both sectors. The country of the issuer and covered bond rating ranks as the top pricing driver for investors, without considering the impact of ECB's expanded asset purchase programme.

The decreasing trend in the share of hard bullet covered bonds is expected to continue in the coming year, according to 80% of surveyed investors. Nevertheless, 38% respondents are prepared to accept lower yield from hard bullet covered bonds rather than take on the risk of maturity extension of a comparable soft bullet instrument.

Covered bonds appetite remains strongest for non-eurozone countries (UK, Singapore, Canada and Scandinavia) with investments expected to grow in the next 12 months. Furthermore, the UK represents the top choice for their data disclosure and transparency of information, as opposed to peripheral and eastern European countries.

Fitch also sought investors' views on legislative harmonisation for covered bonds, as suggested by the European Commission: 54% of them view this as a positive step forward for the industry. Disclosure of information gathered the most votes on a weighted basis as the main area to be harmonised under a European standard.

Overall, 35 investors responded to the survey (down from 52 in 2014) which was mostly addressed to asset managers located in Europe but also APAC and Latin America; ECB, the largest 2015 investor in covered bonds, did not participate in the survey.

The full survey is available on www.fitchratings.com.