Back to Basics
We take you back to the credit basics to review everything you thought you already knew but were too afraid to ask ... Ralf Preusser, European rates strategist at Deutsche Bank in London, explains how covered bonds work
Covered bonds are a way of transforming a large set of illiquid loans into highly liquid, tradeable securities. These loans can be secured (i.e. mortgages) or high quality (i.e. public sector). Covered bonds are made up of a specific pool of assets on which investors have a senior claim. By pooling a large number of small loans and dynamically issuing covered bonds to fund these, issuers improve the liquidity and credit risk of the underlying collateral. The resulting spread income is the main
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