Covered Bonds vs Secured Bonds: 5 Key Difference

5 Basic difference between Covered Bonds and Secured Bonds.

Covered Bonds: A hybrid between asset-backed securities and normal secured corporate bonds. Covered Bonds are primarily used by mortgage lenders and act as a tool for refinancing.

1. Investors in the covered bonds are classified into two types small private investors and large institutional investors.
2. Basically, covered bonds are issued by corporates.
3. Covered bonds are known to be safer than normal bonds because of the additional cushion.
4. Covered bonds have a higher credit rating than the issuer.
5. Covered Bonds are primarily used by mortgage lenders and act as a tool for refinancing.

Secured Bonds: Secured Bonds are a type of investment in debt that is secured by a specific asset owned by the issuer. 

1. Secured bonds are seen as less risky than unsecured bonds because investors in them are at least partially compensated for their investment in the event of default by the issuer.
2. Secured Bonds collateralized by assets such as property, equipment, or an income stream.
3. Secured Bond gives the investor first rights to certain collateral in case the issuer defaults on the payments.
4. Secured Bonds offer slightly less interest in return for their greater safety.
5. Secured bonds issued by Utilities and municipalities corporations.