Spread Determinants of Covered Bonds

Karsten Rühlmann, LBBW und Günther Scheppler, DZ Bank

The financial markets have been in a state of crisis since the end of 2008. Market disruptions have different causes, and the predominant factors that affect the performance of the securities markets alternate. The market for covered bonds is no exception. News from the various “trouble spots” of Europe have had just as great an impact on the spread pattern of covered bonds as interventions by the European Central Bank (ECB) in the market structure. The risk mark-ups on covered bonds have seen widely differing developments as a result. This article examines the impact of fundamental determinants such as turning points in the business cycle, changes in credit ratings, net new issuance volumes and liquidity on the movement of covered bond spreads in recent years, and closes with an analysis of different oppor-tunity/risk profiles of individual covered bond jurisdictions.