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The Use of Mortgage Covered Bonds

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Author Info

  • Renzo G. Avesani
  • Elina Ribakova
  • Antonio Garcia Pascual

Abstract

The rapid mortgage credit growth experienced in recent years in mature and emerging countries has raised some stability concerns. Many European credit institutions in mature markets have reacted by increasing securitization, particularly via mortgage covered bonds. From the issuer''s perspective, these instruments have become an attractive funding source and a tool for assetliability management; from the investor''s perspective, covered bonds enjoy a favorable risk-return profile and a very liquid market. In this paper, we examine the two largest "jumbo" covered bond markets, Germany and Spain. We show how movements in covered bond prices can be used to analyze the credit developments of the underlying issuer and the quality of its mortgage portfolio. Our analysis also suggests that mortgage covered bonds could be of interest to other mature and emerging markets facing similar risks related to mortgage credit.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/20.

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Length: 21
Date of creation: 01 Jan 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/20

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Keywords: Credit; Financial institutions; Economic indicators; mortgage; bonds; bond; mortgages; mortgage loans; cash flow; cash flows; mortgage bonds; mortgage banks; net present value; mortgage portfolio; mortgage lending; international capital; bond market; present value; bond markets; mortgage loan; bondholders; mortgage credit; financial stability; interest rate risk; international capital markets; mortgage portfolios; securitization bonds; mortgage loan portfolio; financial markets; government bond; eligible mortgage; commercial mortgages; mortgage market; bondholder; term bonds; corporate bond; mortgage pool; sovereign bonds; bond spread; underlying mortgage; mortgage-backed securities; housing finance; bond prices; mortgage bank; residential mortgages; stock market; bond holders; access to international capital; bond rates; commercial mortgage; mortgage lenders; bond maturity; corporate bonds; interest rate derivatives; financial system; financial market; liquid markets; mortgage pools; mortgage debt; long-term bonds; private mortgage;

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References

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  1. Renzo G. Avesani, 2005. "First," IMF Working Papers 05/232, International Monetary Fund.
  2. Bank for International Settlements, 2006. "Housing finance in the global financial market," CGFS Papers, Bank for International Settlements, number 26, January.
  3. Renzo G. Avesani & Jing Li & Antonio Garcia Pascual, 2006. "A New Risk Indicator and Stress Testing tool," IMF Working Papers 06/105, International Monetary Fund.
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Cited by:
  1. Larsson, Carl F., 2013. "What did Frederick the great know about financial engineering? A survey of recent covered bond market developments and research," The North American Journal of Economics and Finance, Elsevier, vol. 25(C), pages 22-39.

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