Comparing covered bond yields with senior unsecured bonds and RMBS for UK AAA spreads (see graph below) illustrates the impact of the economic factors previously described at play. Lower yields are found for the covered bonds reflecting the dual nature of the credit protection available to bondholders, and with a few exceptions this has been the experience of the class more widely.
Sovereign risk has an impact from the reduced ability of sovereigns to support issuers, and in the event of a sovereign default, issuer default risk may increase and the ability of a third party to administer the covered loans decrease. We have included UK sovereign CDS spreads to illustrate correlation over this period.