Pimco and Source have launched an actively managed exchange-traded fund (ETF) that invests in covered bonds, an asset class that benefits from preferential treatment under
Basel III and Solvency II regulations.
The Pimco Covered Bond Source Ucits ETF is managed by Kristion Mierau, head of Pimco’s European covered bond portfolio management team. Investors can order shares in the ETF on the Vestima fund processing platform from Clearstream as though it were a mutual fund.
“In the current low interest rate environment, covered bonds offer attractive risk-adjusted yields and are potentially a compelling alternative to broad European government bonds,” says Mierau.
Covered bonds, which are backed by cash flows from mortgages or public sector loans, were first issued in Germany but are now issued across Europe and elsewhere.
The bonds are treated as lower risk-weighted assets under Basel III and considered “liquid assets” under the same regime’s liquidity regulation. They also have privileged treatment under Solvency II, which applies to insurance companies.
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