Risk Premium in Norwegian Covered Bonds

Abstract

In this thesis we study the determinants of risk premium in Norwegian covered bonds. Due to di erences in data quality and bond characteristics we study the market for EUR and NOK denominated bonds issued by Norwegian credit institutions in separate. In line with theory we nd that most of the risk premium in the EUR sample is due to liquidity. As for the relationship between the two samples we see that their strong co-movement is explained by variation in the cross-currency basis swap. We conclude that the Norwegian market for covered bonds is sound and prices bonds in a correct manner.