tailieunhanh - The covered bond market

Over the past decade covered bonds, or securities issued by financial institutions that are secured by dedicated collateral, have become one of the largest asset classes in the European bond market and an important source of finance for mortgage lending. The collateral, or “cover pool”, is usually put together so as to obtain the highest possible triple-A credit rating. As a consequence, covered bonds offer an alternative to developed country government securities for bond investors interested in only the most highly rated securities. Drawing on the BIS international debt securities statistics and other data sources, this feature analyses the recent evolution of the covered bond market. Exploring the main issues. | Frank Packer Ryan Stever Christian Upper 41 61 280 8449 41 61 280 9615 41 61 280 8416 The covered bond market1 The covered bond market offers investors an alternative to developed country government securities. The valuation of covered bonds is complex. While there is some evidence of differences in the pricing of these bonds by nationality of issuer these appear to be only weakly related to differences in the respective legislative frameworks. Recent cases show the pricing of covered bonds to be robust to idiosyncratic shocks to issuer credit risk as well as more systemic shocks to the value of cover pools. JEL classification G11 G12 G15. Over the past decade covered bonds or securities issued by financial institutions that are secured by dedicated collateral have become one of the largest asset classes in the European bond market and an important source of finance for mortgage lending. The collateral or cover pool is usually put together so as to obtain the highest possible triple-A credit rating. As a consequence covered bonds offer an alternative to developed country government securities for bond investors interested in only the most highly rated securities. Drawing on the BIS international debt securities statistics and other data sources this feature analyses the recent evolution of the covered bond market. Exploring the main issues involved in assessing the risk of covered bonds the feature also documents significant divergences among the major rating agencies. An examination of the determinants of covered bond prices suggests that while the nationality of the issuer matters the related differences are generally small. At the same time event study analysis of selected cases finds that the valuation of covered bonds in recent years has been rather robust to shocks to both issuer creditworthiness and the value of the underlying collateral. What are covered bonds Dual nature of protection . The .