The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Capital Markets

Covered bonds: The mortgage conundrum

Covered bonds have always been viewed as a funding tool to supplement the securitization market, but while RMBS new issuance remains patchy there are signs that the market is gaining traction and going global. Could this be at a tipping point? Hamish Risk reports.

Business in the European covered bond market was brisk in the first quarter of 2010. Indeed, issuance volumes reached a record high for the first quarter of any previous year of $127 billion, an almost four-fold increase from the same period a year ago, according to Dealogic. A clear trend is developing here that is seeing covered bonds emerge from the shadows of the RMBS market, with larger investors showing a clear preference for them as an asset class in their own right. The argument has been reinforced by legislative developments outside Europe. Together, these two factors mean that a greater proportion of mortgage financing in future years should be through covered bonds.

This is nowhere more prevalent than in the UK and the US, the two countries whose property bubbles burst most spectacularly and that are most in need of diversified mortgage funding options as their securitization markets face an uphill battle to restore their capacity to fund future mortgage lending.

Take the UK first. The Bank of England’s special liquidity scheme, which is due to be phased out between April 2011 and January 2012, and the Treasury’s credit guarantee scheme, which will be wound down by 2014, have provided support to 25% of the UK’s stock of residential mortgage lending, amounting to more than £300 billion.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree