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Covered Bonds, a financial tool extremely popular in Europe, is gaining popularity and is attracting more and more investors in the United States. A covered bond is different than a mortgage backed security because even after the issuer bundles it up and sells it, it is still kept on the issuer’s balance sheet. This extra security feature leads to the bonds usually having a triple-A rating. Furthermore, it prevents the issuers from underwriting risky loans.
If the United States government adopts these bonds, it will be another move to strengthen the economy and lower uncertainty after the recession. But, this is not the first thing the United States has picked up from Europe; the Corridor System was adopted not too long ago by the Federal Reserve to put a lower bound on the interest rates.
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