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

See all articles by João Pinto

João Pinto

Universidade Católica Portuguesa, Católica Porto Business School and CEGE

Mafalda Correia

Universidade do Porto - Faculdade de Economia (FEP)

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

Pinto, João M. and Correia, Mafalda, Are covered bonds different from securitization bonds? A comparative analysis of credit spreads (March 4, 2022). European Financial Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3045149 or http://dx.doi.org/10.2139/ssrn.3045149

João M. Pinto (Contact Author)

Universidade Católica Portuguesa, Católica Porto Business School and CEGE ( email )

Rua Diogo de Botelho, 1327
Porto, 4169-005
Portugal
+351 22 619 62 00 (Phone)

HOME PAGE: http://www.porto.ucp.pt/

Mafalda Correia

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Roberto Frias
s/n
Porto, 4200-464
Portugal

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