Credit Risk in Covered Bonds

46 Pages Posted: 4 Oct 2010 Last revised: 29 Dec 2013

See all articles by Marcel Prokopczuk

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Jan B. Siewert

Unversity of Mannheim – Center for Doctoral Studies in Business

Volker Vonhoff

University of Mannheim - Department of Business Administration and Finance

Date Written: March 2, 2012

Abstract

Covered bonds are a promising alternative for prime mortgage securitization. In this paper, we explore risk premia in the covered bond market and particularly investigate whether and how credit risk is priced. In extant literature, yield spreads between high-quality covered bonds and government bonds are often interpreted as pure liquidity premia. In contrast, we show that although liquidity is important, it is not the exclusive risk factor. Using a hand-collected data set of cover pool information, we fi nd that the credit quality of the cover assets is an important determinant of covered bond yield spreads. This e ffect is particular strong in times of fi nancial turmoil and has a signi ficant influence on the issuer's re financing cost.

Keywords: Covered Bonds, Credit Risk, Cover Pool, Financial Crisis, Pfandbrief

JEL Classification: G01, G12, G21

Suggested Citation

Prokopczuk, Marcel and Siewert, Jan B. and Vonhoff, Volker, Credit Risk in Covered Bonds (March 2, 2012). Journal of Empirical Finance, Vol. 21, No. 1, 2013, Available at SSRN: https://ssrn.com/abstract=1686787 or http://dx.doi.org/10.2139/ssrn.1686787

Marcel Prokopczuk (Contact Author)

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Jan B. Siewert

Unversity of Mannheim – Center for Doctoral Studies in Business ( email )

D7, 27
Mannheim, 68131
Germany

Volker Vonhoff

University of Mannheim - Department of Business Administration and Finance ( email )

Mannheim, 68131
Germany
+49 621 181-1518 (Phone)
+49 621 181-1519 (Fax)

HOME PAGE: http://finanzierung.bwl.uni-mannheim.de/de/faculty/alumni/vonhoff/

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