The Use of Mortgage Covered Bonds

The rapid mortgage credit growth experienced in recent years in mature and emerging countries has raised some stability concerns. Many European credit institutions in mature markets have reacted by increasing securitization, particularly via mortgage covered bonds. From the issuer''s perspective, these instruments have become an attractive funding source and a tool for assetliability management; from the investor''s perspective, covered bonds enjoy a favorable risk-return profile and a very liquid market. In this paper, we examine the two largest "jumbo" covered bond markets, Germany and Spain. We show how movements in covered bond prices can be used to analyze the credit developments of the underlying issuer and the quality of its mortgage portfolio. Our analysis also suggests that mortgage covered bonds could be of interest to other mature and emerging markets facing similar risks related to mortgage credit.Credit;Financial institutions;Economic indicators;mortgage, bonds, bond, mortgages, mortgage loans, cash flow, cash flows, mortgage bonds, mortgage banks, net present value, mortgage portfolio, mortgage lending, international capital, bond market, present value, bond markets, mortgage loan, bondholders, mortgage credit, financial stability, interest rate risk, international capital markets, mortgage portfolios, securitization bonds, mortgage loan portfolio, financial markets, government bond, eligible mortgage, commercial mortgages, mortgage market, bondholder, term bonds, corporate bond, mortgage pool, sovereign bonds, bond spread, underlying mortgage, mortgage-backed securities, housing finance, bond prices, mortgage bank, residential mortgages, stock market, bond holders, access to international capital, bond rates, commercial mortgage, mortgage lenders, bond maturity, corporate bonds, interest rate derivatives, financial system, financial market, liquid markets, mortgage pools, mortgage debt, long-term bonds, private mortgage