Covered bond

CFA Level I Glossary

A covered bond is on-balance-sheet debt with dual recourse to the issuer and to a ring-fenced, typically replenished cover pool of assets. Investors can claim against both the issuer and the pool, which usually supports higher credit quality than unsecured debt. Unlike many ABS structures, the assets stay on the issuer’s balance sheet. People confuse covered bonds with true securitizations that transfer assets off balance sheet.

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