ProShares launches ETF that targets highly rated corporate bonds

Covered bonds have not been widely available in the U.S.

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The following is from ProShares...

BETHESDA, Md.--(BUSINESS WIRE)--ProShares, a premier provider of alternative exchange traded funds (ETFs), today announced the launch of ProShares USD Covered Bond (NYSE: COBO). This new ETF is the only corporate bond fund1—mutual fund or ETF—in the U.S. with substantially all of its assets rated AAA.2 COBO lists on NYSE Arca today.

COBO invests in covered bonds, a type of collateralized corporate debt typically issued by non-U.S. financial institutions. Covered bonds are a popular investment outside the U.S. but not broadly accessible in the U.S. until today.

“Many investors are interested in high credit quality bonds, but the supply of AAA-rated corporate debt in the U.S. is very limited,” said Michael L. Sapir, Chairman and CEO of ProShare Advisors LLC, ProShares' investment advisor. “COBO, a first-of-its-kind ETF, fills the gap by accessing the highest-rated segment of the $3 trillion,3 240-year-old4 covered bond market.”

COBO seeks to match the performance of the BNP Paribas Diversified USD Covered Bond Index, before fees and expenses. The index tracks the performance of a portfolio of AAA-rated covered bonds, which are denominated in U.S. dollars. Each bond must be AAA-rated by at least one independent rating agency.

More about Covered Bonds

The first covered bond was created in 1769 in Prussia by Frederick the Great in the aftermath of the Seven Years’ War. In 1900, the German “Mortgage Bank Act” came into effect, setting up the essential principles that govern much of the covered bond market today.5 Since then, issuance of covered bonds in Europe and other parts of the world has grown significantly. The global covered bond market is estimated to be approximately $3 trillion outstanding.

High Credit Quality
Covered bonds are different from typical U.S. corporate debt in that, in the event of a default, covered bondholders not only have a senior unsecured claim against the issuer but also a preferential claim to a segregated, actively maintained “cover pool” of assets. The dual coverage from the issuer and the cover pool typically makes covered bonds a high credit quality investment. COBO focuses exclusively on the highest-rated covered bonds.

Attractive Yields
Currently, AAA-rated covered bonds have higher yields than U.S. Treasury and AAA-rated U.S. corporate debt of similar duration.6

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