European banks agreed to suspend trading in the $2.8 trillion market for mortgage debt known as covered bonds to halt a slump that has closed the region’s main source of financing for home lenders. Banks including Barclays Capital, HSBC Holdings Plc and UniCredit SpA took the step as investors shy away from bank debt on concern lenders face more mortgage-related losses. That is probably a safe bet as losses are expected through 2009. Without market making between banks, investors will shun the sales of new covered bonds.

For those of you more versed in United States markets, covered bonds are dominated by German Banks. They are tipically rated AAA. We saw what happened in the United States when funding was all but eliminated, thus a slump that closes any region’s main source of financing for home lenders could have a dynamic effect.