CFA Level I · CFA Level I Exam · Fixed-Income Issuance and Trading
An investor compares a covered bond with a similar-maturity senior unsecured corporate bond from the same bank. Relative to the senior unsecured bond, the covered bond most likely:
The covered bond most likely has dual recourse: a claim on a segregated pool of assets and on the issuing bank. The assets remain on the bank's balance sheet. Off-balance-sheet transfer to a special purpose entity describes securitization, not a covered bond.
- Ahas a dual recourse claim on a segregated pool of assets and on the issuerCorrect
- Bis issued by a special purpose entity that has no recourse to the bank
- Ctransfers the bank's loans off its balance sheet to bondholders
Explanation
Covered bonds give investors recourse to a cover pool of assets that stays on the issuer's balance sheet, plus a claim on the issuer itself (dual recourse). The SPE with no recourse and the off-balance-sheet transfer describe securitization, not covered bonds.
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