Like regular secured bonds, these bonds too are backed by a pool of assets. This strengthens the creditworthiness of covered bonds vis-a-vis ordinary secured bonds. For instance, if an investor buys only AA-rated bonds, even an A-rated issuer can issue covered bonds which get rated ‘AA’, making them an investment option for this investor. The yields on covered bonds, which may be higher than that of non-covered bonds of comparable rating, make them attractive. The sectors that are currently issuing covered bonds such as gold lending and vehicle finance are strongly linked to the covid-hit informal economy.

Source: Mint July 05, 2021 17:26 UTC