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Could covered bonds be the answer to European financial woes?

As the European debt market continues to struggle and the cost of straightforward debt continues to rise many banking operations are now looking towards the covered bonds market. In effect this allows companies to put forward various assets as collateral as a means of lending further liquidity from investors. Recently we saw Royal Bank of Scotland looking into this arena as a potential way to refinance the company's debt and reduce interest costs in the short to medium term.

There is no doubt that the more assets that companies can put forward as a means of collateral against funding programs the more interest this will attract from investors. Only this week we have seen $9.6 billion worth of covered bonds issued which would indicate there is an appetite from investors at this point in time despite the fact the Eurozone and international debt markets are struggling.

There are many financial institutions around the world in serious need of refinancing and covered bonds could offer a short-term solution until more long-term arrangements can be put in place. It will be interesting to see whether investor appetite for these particular investment instruments remains high because there are still major concerns about the European economy and the worldwide economy as a whole.

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