Liquidity and credit risk premia in the Pfandbrief market

Siewert, Jan B. ; Vonhoff, Volker

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Document Type: Working paper
Year of publication: 2011
Place of publication: Mannheim
Publication language: English
Institution: Business School > ABWL u. Finanzierung (Theissen 2009-)
Subject: 000 Generalities
Classification: JEL: G01, G12, G21,
Abstract: Yield spreads between German covered bonds (Pfandbriefe) and German government bonds usually have been interpreted as pure liquidity premia. In contrast, our analysis reveals that liquidity is the most important, but not the exclusive risk factor within the Pfandbrief market. We show that Pfandbrief yield spreads also depend on the quality of the issuer, the type of collateral, and the quality of the cover pool. In particular, it is surprising that the issuer's default risk is priced considerably, even though Pfandbriefe are backed by high-quality mortgages or public-sector loans and a Pfandbrief default has never been occurred. Using recently published cover pool data, we also show that the quality of the cover assets is less relevant in a normal market environment, but important in times of financial turmoil. Hence, Pfandbrief issuers with a sustainable cover pool profit from lower refinancing cost, especially during market crises.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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