This is due to the fact that covered bonds are secured by assets of the issuer, usually mortgages or residential loans. These assets provide a degree of protection to investors, meaning that covered bonds are less susceptible to major economic shocks. Furthermore, due to the strict issuance requirements and ongoing liquidity and asset coverage ratios, the bonds remain highly rated by Fitch.
In summary, Canadian covered bonds have utilised their asset protection and stringent requirements to remain with high ratings from Fitch. These bonds remain relatively safe investments due to their protection from major economic shocks and tight regulation which keeps their rating high.
This article was contributed on Jun 23, 2023
