Interest from retail investors in jumbo covered bonds may be given a boost when the European Union introduces its savings tax directive in July of this year, according to investment bank ABN Amro.
"On the back of the directive, we expect retail demand for grandfathered bonds to increase significantly in the months ahead," stated Christoph Anhamm of ABN Amro in a report quoted by the Financial Times.
The new European Union legislation introduces exchange of information or a withholding tax for interest payments to retail investors across the EU. However, bonds issued before March 1, 2001 and not increased in volume after February 28, 2002 will remain unaffected.
As the transition period lasts for seven years, only bonds maturing before July 2012 will be exempt. These issues are otherwise known as grandfather bonds.
According to the ABN Amro report, the volume of jumbo covered bonds with grandfathered status maturing in this period is EUR180 billion.
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