What are covered bonds?

Covered bonds are a type of bond that is backed by a pool of assets, usually mortgages or loans. Here's the deal:

1. They're typically issued by financial institutions like banks or mortgage companies.
2. The assets that back the bonds are "ring-fenced," which means they're segregated from the issuer's other assets and liabilities.
3. The bonds are considered lower risk because they have priority over other claims on the issuer's assets in the event of bankruptcy.
4. They're popular in Europe, where they've been used for centuries to finance home loans.
5. The level of "cover," or the amount of assets backing the bond, varies by issuer and jurisdiction.
6. Covered bonds are considered "senior" debt, which means they get paid before other debt obligations in the event of a default.
7. They tend to offer a higher yield than regular bonds because they're considered less risky, but they're still subject to interest rate risk and credit risk.

Covered bonds offer first recourse against the issuer as well as recourse that is shielded from bankruptcy against the issuer's assets (Cover Pool), in contrast to secured corporate bonds that only offer recourse against the issuer. Due to the covering offered, covered bonds are anticipated to boost both the issuer's and the bond's credit ratings.

Note: Covered bonds can not be pledged as collateral on Tiqs.