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Abstract
The authors analyze the determinants of credit spreads of 674 US dollar denominated covered bonds, issued by institutions domiciled in twenty-one countries, over the sample period 1/2001 to 1/2016. Even though covered bond contracts include strong credit enhancements, there is considerable heterogeneity in observed credit spreads through time and in the cross-section. The authors find that measures of sovereign risk and country specific legal frameworks are among the most important explanatory factors for differences in spreads across these bonds.
TOPICS: Project finance, statistical methods, credit risk management
Key Findings
• The authors study the determinants of US dollar denominated covered bond credit spreads for bonds issued in twenty-one countries during the period 1/2001 to 1/2016.
• Despite carrying strong credit enhancement features, US dollar denominated covered bonds still exhibit variation in spreads both through time and in the cross-section of issuer country of domicile.
• Empirical results suggest sovereign risk and country-level legal frameworks are important determinants of US dollar denominated covered bond credit spreads.
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US and Overseas: +1 646-931-9045
UK: 0207 139 1600