Investment Education PLC

Covered Bonds
Last Updated - 6 December 2011
Todays Date -
Return to CoursePrint course
Duration 1 day
Available as an in-house course. Details on request.

The Covered Bond market is a large and important part of the European bond markets with a loyal and growing investor base. Given recent disruptive events and falling credit quality, the security provided by Covered Bonds is likely to result in much more attention in future.


This course explains what a Covered Bond is, looks at its pros and cons for different investor types and for issuers, and focuses on the significant variation between the different issue types, including Structured Covered bonds and the many geographic sectors.



By the end of the course participants will be able to understand:


         What a Covered bond is

         Its pros and cons for investors and issuers

         Its regulatory capital treatment for investors and issuers

         How much it varies by type and jurisdiction

         How Structured Covered bonds are created and how they compare

         How issuance has spread internationally

         How they performed during the credit crisis


                               Fund Managers and their Support staff

                               Operations & Back Office staff

                               Risk & Compliance managers

                               Accountants & Lawyers (CPD eligible)

                               IT & System executives involved in Fixed Income applications

                               Brokers, Bankers and IFAs looking at new investment opportunities

                               Dealers, Treasury, Control and Valuation staff



A basic Fixed Income knowledge is assumed.  Some awareness of the basics of mortgages would be helpful but is not essential.




o                   Main features and Background to Covered Bonds Size of CB Market

o                   Defining a Covered bond: the UCITS Directive

o                   Investor pros and cons: the credit record, Risk Weight, pricing, their place in debt indices   

o                   The impact on senior unsecured bonds and regulatory limits on CB issuance.           

o                   Issuer pros and cons: funding at a competitive rate, Basel and capital requirements, comparison with securitisation.                                               

o                   Trading & Settlement                                                           

        How Price, Return, Investor audience / Liquidity can change with ratings changes

        Importance of Diversification and number of properties.

        Meaning and importance of LTV and Asset and Income coverages. How these change.

        Repayments and Pool Factor meaning

        Arrears and Repossessions impacts. Loss Severity meaning

        Issuing process. Role of Trustee and Investment Banks.


        Explain LIBOR and Pricing process.

        Role of Euroclear and a Custodian

        How CBs performed in the recent crisis and why.


        Case study: A Pfandbrief issue

        Pfandbriefe in more detail:

        Asset-Liability Management and hedging

        Managing the issue over its lifecycle

        Rating agency analysis: how the rating agencies approach rating Covered bonds

        Risk weights and the investor base

        Cedulas Hipotecarias, Over-Collateralisation levels and Cedulas Cajas: bonds covered by Cedulas Hipotecarias

        Obligations foncieres: Societes de Credit  Foncier (SCFs)

            Case study:  Cedulas Hipotecarias and Cedulas Cajas issues