wrapped bond

USA

A bond that is guaranteed by a monoline. A wrapped bond has the same credit rating as the insuring monoline which is generally higher than the credit rating of the bond issuer. As a result of the guarantee and higher credit rating, the issuer can obtain financing at a lower interest rate than it may have otherwise received. Wrapped bonds were originally used in municipal bond issuances but now are used to reduce the borrowing costs associated with a wide variety of financial products including project finance bonds and mortgage backed securities. Following the 2007 subprime mortgage crisis and the increased number of mortgage defaults, several monolines who insured these bonds were downgraded, resulting in reduced usage of wrapped bonds.