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This paper shows that strict match pass-through funding of covered bonds provides safe and liquid mortgage bonds. Despite a 30% drop in house prices during the 2008 global crisis Danish mortgage bonds remained as liquid as most European government bonds. The Danish pass-through system effectively eliminates credit risk from the investor's perspective. Similar to other safe bonds, funding liquidity becomes the main driver of mortgage bond liquidity and this creates commonality in liquidity across markets and countries. These findings have implications for how to design a robust mortgage bond system and for the treatment of covered bonds in capital regulation.

Publication information

Original languageEnglish
Publication date2016
Number of pages60
StatePublished - 2016
Event - Oslo, Norway

Conference

ConferenceThe 43rd European Finance Association Annual Meeting (EFA 2016)
Number43
LocationBI Norwegian Business School
CountryNorway
CityOslo
Period17/08/201620/08/2016
Internet address

    Keywords

  • Mortgage bonds, Covered bonds, Housing crisis, Market design, Banking regulation, Financial intermediation

ID: 45429052