Covered Bonds: An Investing Stalwart Through the Centuries

Filed in Debt, euro, Gold Prices, pimco, silver by on September 15, 2010 0 Comments

So-called “covered bonds” are debt securities that are backed by the cash flows from public-sector loans or from real-estate mortgages. Covered bonds resemble other asset-backed securities (ABS) created through the process known as “securitization.” But there’s one big difference : Covered-bond assets must remain on the issuer’s consolidated balance sheet. Created in Prussia in 1769 by Frederick the Great , covered bonds have a long history and through the centuries have become a very popular investment instrument in Europe. There, known as Pfandbriefs , these mostly AAA-rated debentures make up the third-largest segment of the German bond market (behind public-sector bonds and unsecured bank debt). “In the past few years, covered bonds have enjoyed a resurgence as investors search for high quality investments with attractive yields and as European banks look to finance the growth in mortgage lending,” fixed-income heavyweight PIMCO wrote in a 2006 research note to investors.

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Covered Bonds: An Investing Stalwart Through the Centuries

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