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
Pages (from-to)841-900
Number of pages60
JournalEuropean Financial Management
Volume29
Issue number3
DOIs
Publication statusPublished - Jun 2023

Keywords

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

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