Safe and Liquid Mortgage Bonds: Evidence from the Danish Housing Crash of 2008

Jens Dick-Nielsen, Jacob Gyntelberg, Jesper Lund

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

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.
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.

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

Cite this

Dick-Nielsen, J., Gyntelberg, J., & Lund, J. (2016). Safe and Liquid Mortgage Bonds: Evidence from the Danish Housing Crash of 2008. Paper presented at The 43rd European Finance Association Annual Meeting (EFA 2016), Oslo, Norway.
Dick-Nielsen, Jens ; Gyntelberg, Jacob ; Lund, Jesper. / Safe and Liquid Mortgage Bonds : Evidence from the Danish Housing Crash of 2008. Paper presented at The 43rd European Finance Association Annual Meeting (EFA 2016), Oslo, Norway.60 p.
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Dick-Nielsen, J, Gyntelberg, J & Lund, J 2016, 'Safe and Liquid Mortgage Bonds: Evidence from the Danish Housing Crash of 2008' Paper presented at, Oslo, Norway, 17/08/2016 - 20/08/2016, .

Safe and Liquid Mortgage Bonds : Evidence from the Danish Housing Crash of 2008. / Dick-Nielsen, Jens; Gyntelberg, Jacob; Lund, Jesper.

2016. Paper presented at The 43rd European Finance Association Annual Meeting (EFA 2016), Oslo, Norway.

Research output: Contribution to conferencePaperResearchpeer-review

TY - CONF

T1 - Safe and Liquid Mortgage Bonds

T2 - Evidence from the Danish Housing Crash of 2008

AU - Dick-Nielsen,Jens

AU - Gyntelberg,Jacob

AU - Lund,Jesper

PY - 2016

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N2 - 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.

AB - 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.

KW - Mortgage bonds

KW - Covered bonds

KW - Housing crisis

KW - Market design

KW - Banking regulation

KW - Financial intermediation

KW - Mortgage bonds

KW - Covered bonds

KW - Housing crisis

KW - Market design

KW - Banking regulation

KW - Financial intermediation

M3 - Paper

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Dick-Nielsen J, Gyntelberg J, Lund J. Safe and Liquid Mortgage Bonds: Evidence from the Danish Housing Crash of 2008. 2016. Paper presented at The 43rd European Finance Association Annual Meeting (EFA 2016), Oslo, Norway.