Are covered bonds different from securitization bonds? A comparative analysis of credit spreads
European Financial Management, Forthcoming
50 Pages Posted: 2 Oct 2017 Last revised: 15 Jun 2022
Date Written: March 4, 2022
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 ABS and 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.
Keywords: credit spreads; securitization; covered bonds; mispricing; cost of borrowing
JEL Classification: F34; G01; G12; G24
Suggested Citation: Suggested Citation