Highly Liquid Mortgage Bonds using the Match Funding Principle

Jens Dick-Nielsen*, Jacob Gyntelberg

*Corresponding author af dette arbejde

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Abstrakt

We show that pass-through funding of mortgages with covered bonds supported by strong creditor rights is one way of providing highly liquid mortgage bonds. Despite a 30% drop in house prices during the 2008 crisis, these mortgage bonds remained as liquid as comparable government bonds with high trading volume and low bid-ask spreads. Market liquidity of these covered bonds is primarily driven by the availability of funding liquidity. Funding liquidity is the main concern because the pass-through funding approach effectively eliminates other types of risks from the investor's perspective. Banking regulators should take into account the implications of these findings, particularly when it comes to the interplay between liquidity and capital requirements.

OriginalsprogEngelsk
Artikelnummer2050001
TidsskriftQuarterly Journal of Finance
Vol/bind10
Udgave nummer1
Antal sider37
ISSN2010-1392
DOI
StatusUdgivet - mar. 2020

Emneord

  • Covered bonds
  • Financial intermediation
  • Liquidity
  • Match funding principle
  • Mortgage bonds

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