João M. Pinto

This study compares credit spreads and pricing determinants of securitization vis‐à‐vis covered bonds. Our analysis reveals that although ratings are the most important pricing determinant for asset‐backed securities (ABS) and mortgage‐backed securities (MBS) investors place relatively more importance on contractual, macroeconomic and banks' characteristics rather than ratings in pricing covered bonds. We find evidence of a mispricing effect in structured finance markets: ABS and MBS have higher credit spreads than similarly rated public‐covered bonds and mortgage‐covered bonds and security prices reflect information beyond credit ratings. We find no evidence of borrowing costs affecting banks' choice between securitization and covered bonds.