Basics

"There are currently around EUR 870 billion of privately placed covered bonds, roughly the same volume as for benchmark covered bonds [i.e., issuances of at least €1 billion each, which are typically sold at public auction].  However, private placements are sometimes overlooked in analysis and statistical reports on the covered bond market, despite being the dominant type of issuance in several countries [including Germany]."

This graphic, prepared by Covered Bond Investor™ cofounder Mercy Jiménez, is a timeline showing key events in the (short) history of covered bonds in the U.S.  It includes early issuance by Washington Mutual and Bank of America, which halted as the global economic crisis began to mount.

To download a PDF, click on "Key Events Graphic" under "Attachment," below.

"The introduction of a covered bond market into Australia during the current market conditions would help to diversify funding sources leading to a greater degree of financial stability.  It is not surprising, therefore, that covered bonds are currently being considered by Treasury as a potential source of funding for Authorised Deposit-taking Institutions."

The European Covered Bond Council's (ECBC's) Fact Book, released in a new edition yearly, is the world's single greatest annual source of information, insight, and statistics on covered bonds.  It is also one of the world's great values—available free as a PDF download.

Although the focus is naturally on Europe, the book's coverage is broader, including strong technical articles on covered bonds in the U.S. and Canada.

Yes, we know—there are already dozens of charts floating around that compare/contrast the key features of covered bonds with ABS/MBS.  The most frequently cited differences for covered bonds relate to dynamic cover pools, dual recourse, reduced prepayment risks, and on-balance sheet obligations.

“With the current financial crisis, the success of the covered bond market in Europe, and the support of the government’s financial leaders, it is increasingly possible that a covered bond market will emerge to complement the current securitization model in the United States.  It is reminiscent of the emergence of the securitization model during the savings and loan crisis of the 1980s.”

The U.S. Covered Bond Council is emerging as a central player in the nascent U.S. covered bond market.   It is sponsored by The Securities Industry and Financial Markets Association (SIFMA) and The American Securitization Forum (ASF).

Given all the dramatic financial events since then, it’s easy to forget that former U.S. Treasury Secretary Henry Paulson originally brought Neel Kashkari into the federal government for the purpose of (among other things) helping to kick-start development of a U.S. covered bond market (in aid of funding home mortgages).