Europeans issued the first covered bonds in 1767. Today, they have about 2.1 trillion euros in outstanding issuance. About 55 percent are based on residential & commercial real estate loans, and over 40 percent represent public sector debt.
Sep. 25 (01:03)
Latest News & Analysis
Latest Resources
FIXING A “BROKEN” MORTGAGE MARKET: This white paper from the Mortgage Bankers Association offers “building blocks,” including covered bonds. Read More>>
The first U.S. covered bonds were issued by Washington Mutual (2006) and Bank of America (2007). Their issuances were marketed exclusively in Europe.
The U.S. Treasury 'Best Practices' guidelines for covered bonds--released in July 2008--are less restrictive than the requirements of the FDIC's policy statement issued that same month.
Although covered bonds have existed in Europe for centuries, the market was relatively stagnant until 1995. In that year a German bank transformed the market by offering a "two-way bid-offer spread."
Rating agencies typically analyze the cover pool for U.S. covered bonds on a quarterly basis.
The FDIC's covered bond policy allows bond maturities up to 30 years.
Dedicated covered bond legislation has not been enacted in the U.S., although H.R. 6659 was introduced in 2008.
Bloomberg and Tradeweb have both pledged to create an online marketplace in the U.S. for covered bonds.
The outstanding covered bond market in Europe amounts to nearly $3 trillion.
The U.S. Treasury’s "Best Practices" guidance sanctions two types of covered bond structure—both "SPV" (Special Purpose Vehicle) and "direct issuance."
In their pioneering U.S. issues, both Washington Mutual and Bank of America issued covered bonds whose structure included an “SPV” (special purpose vehicle) .
The cover pool set up by Bank of America in 2007 is allowed to include both first lien and second lien residential mortgage loans or home equity lines of credit or a combination thereof.
Bank of New York is the appointed independent asset monitor that assesses accuracy of the Asset Coverage Test for Bank of America’s 2007 issue of covered bonds.
Deutsche Bank Trust Company Americas is the appointed independent asset monitor that assesses accuracy of the Asset coverage Test for Washington Mutual’s 2006 issue of covered bonds.
With a “bullet bond,” payments are interest-only until the expected maturity date, when the principal is repaid. A “hard bullet” bond includes a guarantee of principal repayment. A “soft bullet” bond does not—but offers higher yields.