Lower risk tolerance should bode well for covered CDS

Perceptions of risk have changed since a covered bond CDS was first mooted a few years ago and though it failed to get off the ground, times have changed. Liquidity in the covered bond market is no longer taken for granted and, because balance sheet availability for trading has been squeezed, banks have become more risk averse. As such, there is value in having another tool available to enhance liquidity and hedge risk – such as a covered bond CDS.