Although covered bonds as dual-recourse
instruments are among the safest investments
available, they have not escaped the effects of
the fi nancial market turmoil since mid-2007.
However, until mid-September 2008, the
performance of covered bonds illustrates that
they have been relatively more resilient than
other wholesale funding instruments. Spreads
have widened, but much less than for unsecured
senior debt or for asset-backed securities. The
spread widening has also highlighted differences
between different covered bonds, in terms
of types of collateral, the legal framework, a
domestic versus international investor base.
Primary market issuance of covered bonds has
continued until mid-September 2008, albeit at
a lower volume, shorter maturities and higher
spreads. However, the impact has been smaller
than on other funding sources. Secondary market
liquidity has been affected, due to the disruption
to interbank market-making arrangements.