Are covered bonds different from securitization bonds? A comparative analysis of credit spreads

Mafalda C. Correia, João M. Pinto*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This study compares credit spreads and pricing determinants of securitization vis-à-vis covered bonds. Our analysis reveals that although ratings are the most important pricing determinant for asset-backed securities (ABS) and mortgage-backed securities (MBS) investors place relatively more importance on contractual, macroeconomic and banks' characteristics rather than ratings in pricing covered bonds. We find evidence of a mispricing effect in structured finance markets: ABS and MBS have higher credit spreads than similarly rated public-covered bonds and mortgage-covered bonds and security prices reflect information beyond credit ratings. We find no evidence of borrowing costs affecting banks' choice between securitization and covered bonds.
Original languageEnglish
Number of pages60
JournalEuropean Financial Management
DOIs
Publication statusAccepted/In press - 6 Jun 2022

Keywords

  • Credit spreads
  • Securitization
  • Covered bonds
  • Mispricing
  • Cost of borrowing

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