Norwegian covered bonds – a rapidly growing market
by Bjørn Bakke, Ketil Rakkestad and Geir Arne Dahl
Covered bonds (OMFs) were introduced in Norway in June 2007 and have already become an important source of funding for Norwegian financial services groups and banking alliances. The volume outstanding in NOK and foreign currency was equivalent to around NOK 500 billion at end-2010 Q2. So far, most OMFs have either been used in the government swap arrangement and exchanged for Treasury bills, or issued abroad and purchased by foreign investors. The combination of low risk and higher returns than on government bonds will probably lead to greater interest among Norwegian investors too in the coming years. This article presents the key features of OMFs and the market for them in Norway and abroad. It also highlights a number of risk factors and discusses whether OMFs could affect the stability of the financial system.
(Added 30 Nov 2010)