ETF Investors Can Now Access Covered Bonds
The first ETF to invest in covered bonds from ProShares holds mostly Canadian bank issues, since they’re still AAA rated.
By Rosalyn Retkwa
ProShares of Bethesda, Maryland, has launched the first ETF in the U.S. with dollar-denominated covered bonds from non-U.S. banks its new USD Covered Bond ETF, which started trading on May 23 under the ticker symbol COBO.
So far, with $13 million in assets, most of the 36 covered bonds in its portfolio are from Canadian banks, with a weighted average maturity of 3.33 years and an average yield to maturity of 1.48 percent.
Canada is still a AAA country, and thats significant to the ability of its banks to float AAA covered bonds. Because covered bonds are collateralized backed by dedicated pools of loans that remain on the banks balance sheets and theyre also collateralized at slightly more than 100 percent, as a cushion against defaults, the bonds are typically rated AAA, even when the issuing banks are a notch or two lower. But theres one big caveat: The sovereign rating of the issuing banks country also has to be AAA. ....