Highly Liquid Mortgage Bonds using the Match Funding Principle

Jens Dick-Nielsen*, Jacob Gyntelberg

*Corresponding author for this work

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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.
Original languageEnglish
Article number2050001
JournalQuarterly Journal of Finance
Issue number1
Number of pages37
Publication statusPublished - Mar 2020


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

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