What are covered bonds?

What will be an ideal response?

One of the largest sectors of the European market is the covered bonds market. Covered bonds are issued by banks. The collateral for covered bonds can be either (1) residential mortgage loans, (2) commercial mortgage loans, or (3) public sector loans. They are referred to as "covered bonds" because the pool of loans that is the collateral is referred to as the "cover pool." The cover pool is not static over the life of a covered bond. That is, the composition of the cover pool changes over time.