In the current situation, Norwegian interest rates on a par with interest rates in the euro area would lead to instability. If monetary policy had not contributed to curbing demand, the pressure on economic resources would have led to accelerating inflation. Countries participating in EMU have gained access to a large, liquid financial market in their own currency, with low transaction costs. The risk of exchange rate losses associated with cross-border investment and borrowing in the euro area has been eliminated. This can result in substantial gains, not least for some of the smaller countries. The business sector in the euro area is taking advantage of this. The volume of bonds issued by non-financial corporations has increased substantially each year since the introduction of the common currency in January 1999. Financial markets are small and fairly illiquid in Norway compared with the euro area. Combined with the uncertainty associated with exchange rate developments, this can add a premium on the required rate of return on investments in NOK. This can in turn contribute to a higher long-term interest rate in Norway than in the euro area countries over time. In the long term, financial market participants expect Norwegian interest rates to be close to 1 percentage point higher than in the euro area.
The collateral pool for covered bonds may comprise residential mortgages or mortgages for holiday homes with a loan-to-value ratio (LTV) of up to 75 per cent, commercial property mortgages with an LTV of up to 60 per cent or loans to public sector entities with an LTV ratio of up to 100 per cent. These instruments are highly collateralised, carrying lower risk premiums than ordinary bank bonds, and are well suited to pension fund investment and other investments with a long-term horizon. According to the rules for the issue of covered bonds, the value of the cover pool is required at all times to exceed the value of the covered bonds. Both assets and liabilities are to be recorded at estimated market value. This implies that a mortgage company must add further collateral to the cover pool, for example in the form of government bonds, to replace any shortfall. An efficient bond market can handle large trading volumes without substantially affecting prices. Such a market requires instruments that are easy to understand and clear regulation. Trading should be transparent. Ideally, there should be multiple independent bidders and askers and trading volumes should be high in primary and secondary markets. Issues of covered bonds have picked up in Norway since the regulations relating to covered bonds entered into force on 1 June 2007, supported since autumn 2009 by the arrangement for the exchange of government bonds for covered bonds.