Covered bonds are on‐balance sheet, asset‐backed financing instruments. They are viewed as highly secure “gilt‐edged” investments. Investors have dual recourse, both to the pool of pledged assets that collateralize, or cover, the bond and to the issuer if the proceeds realized from the cover pool are inadequate. Covered bonds differ by country, with the features being determined by both law and regulation. Several countries around the world are working to introduce enabling covered bond legislation, which will assist the product as a new mortgage funding option.
