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Subject 1. Covered Bonds PDF Download
Covered bonds are securities issued by a bank or mortgage institution and collateralized against a pool of assets. Unlike ABS, The underlying loans remain on the books of the banks that issued them, reducing the risk of losses to investors.
The institutions may replace prepaid, non-performing or defaulted loans with performing loans to minimize the risk of the underlying assets.
There is usually one bond class per cover pool.
Covered bonds typically have AAA ratings. They are safer and offer lower yields than otherwise similar ABS.
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