Are covered bonds different from securitization bonds? A comparative analysis of credit spreads |
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Authors: | Mafalda C Correia João M Pinto |
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Institution: | 1. Faculty of Economics, University of Porto, Porto, Portugal;2. Department of Management, Católica Porto Business School and CEGE, Universidade Católica Portuguesa, Lisbon, Portugal |
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Abstract: | This study compares credit spreads and pricing determinants of securitization vis-à-vis covered bonds. Our analysis reveals that although ratings are the most important pricing determinant for asset-backed securities (ABS) and mortgage-backed securities (MBS) investors place relatively more importance on contractual, macroeconomic and banks' characteristics rather than ratings in pricing covered bonds. We find evidence of a mispricing effect in structured finance markets: ABS and MBS have higher credit spreads than similarly rated public-covered bonds and mortgage-covered bonds and security prices reflect information beyond credit ratings. We find no evidence of borrowing costs affecting banks' choice between securitization and covered bonds. |
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Keywords: | cost of borrowing covered bonds credit spreads mispricing securitization |
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