Bulletin – September Quarter 2017 Covered Bonds in Australia Abstract

Since their introduction in Australia in 2011, the stock of covered bonds has grown to around $80 billion, or around 15 per cent of Australian financial institutions' long-term debt. Covered bonds are a form of secured funding backed by both the issuer and a specific pool of assets. In practice, covered bonds are typically issued by banks and secured against pools of residential mortgages. Since they are secured against assets, covered bonds provide increased protection for lenders. As a result, they can be issued at lower yields and longer tenors than unsecured bonds and can be easier to issue during periods of market stress. However, covered bonds can reduce the protection of other unsecured creditors who then may require extra return.

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