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Subject 9. Covered Bonds PDF Download

Covered bonds are securities issued by a bank or mortgage institution and collateralized against a pool of assets. Unlike ABS, The underlying loans remain on the books of the banks that issued them, reducing the risk of losses to investors.

The institutions may replace prepaid, non-performing or defaulted loans with performing loans to minimize the risk of the underlying assets.

There is usually on bond class per cover pool.

Covered bonds typically have AAA ratings. They are safer and offer lower yields than otherwise similar ABS.

Learning Outcome Statements

j. describe characteristics and risks of covered bonds and how they differ from other asset-backed securities.

CFA® 2022 Level I Curriculum, Volume 4, Module 42

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