Covered bonds have long been used in Europe. They are backed by a pool of high-quality assets - frequently mortgages - and investors have recourse to the borrower and the assets in the event of default. This 'dual recourse' security blanket has given covered bonds a reputation as one of the safest and most robust asset classes in the financial markets.
In the heady days before the global credit crunch and widespread recession, the safe aspect of covered bonds seemed less important. Issuers largely preferred securitisation, where they were disintermediated from the assets in any given transaction. Investors were happy to go with the flow.
