Featured statistic: 35%

Date 20 February 2008

Of all bonds issued by Dutch special purpose vehicles (SPVs) only 35% changed hands during 2007. Whether transactions in a bond took place in a certain month, is shown by the availability of a quotation for that bond in that month. During 2007, prices were quoted for only 696 of the 2,004 SPV bonds in at least one month.

Chart Numbers of SPV bonds traded during a particular month in 2007

SPVs are legal entities created, in many cases, by banks for the 'securitisation' of certain financial assets (such as mortgage loans or corporate loans). In a securitisation, the original lender transfers its ownership rights to a set of loans to the dedicated SPV. In order to finance the transfer, the SPV issues several bonds, known as 'tranches', decreasing in size and increasing in credit risk. By removing the financial assets from its balance sheet, the bank can put the capital it held to comply with solvability requirements, to other uses. The lack of quotations is generally explained from the fact that the originating banks often bought back the SPV bonds and included them in their own portfolios. The bonds may then be used, for instance, as collateral for credit raised from the European System of Central Banks.

Considered by amounts outstanding rather than numbers, the percentage of quoted SPV bonds rises to 71%. This is because the largest tranches of bond issues (i.e. EUR 50 million or over), with the lowest credit risk, were traded more frequently than the smaller tranches. Most trades took place in the month of October, soon after the start of the turmoil on the financial markets. In that month, 372 of these bonds changed hands at least once. In the preceding months, the number hardly exceeded 150. November and December, finally, were unusually calm. The month of October also deviated strongly from the surrounding months in that many smaller tranches were traded then.