Just a few years ago, extendable maturity covered bond structures were the exception rather than the rule.
However, analysts and rating agencies increasingly focused on the valuation of liquidity risks and thus refinancing
risks in the wake of the financial crisis. By making structural adjustments to their programmes, issuers were
able either to mitigate the related risks or transfer them in their entirety to investors. In addition to soft-bullet
structures, where extension periods are typically 12 months, conditional pass-through structures with much
longer maximum maturities have also increasingly gained ground in the last two years.
Below, we take a closer look at current developments of covered bonds with extendable maturities and examine
the motives of issuers on the one hand and the reactions of investors on the other.