An initiative to introduce standardised covered bond CDS is nearing fruition, The Covered Bond Report understands.

Credit Suisse, Deutsche Bank and JP Morgan are said to be involved in the project. Officials contacted by The CBR at the three banks declined to comment or did not respond to enquiries.

Analysts at JP Morgan explored the potential for covered bond CDS in research published in September. They noted that although covered bond CDS have been traded before, this has been “by appointment”.

“Covered bond CDS provide a new and exciting way for investors to gain exposure to the covered bond market in unfunded format or to hedge covered bond exposure,” they said.

The analysts said that documentation will be based on the standard documentation traded in the CDS market, with “some tweaks to make it more reflective of the underlying risk and product”.

They said that initially, covered bond CDS will be traded on France, Germany, Italy, Ireland, Luxembourg, Portugal, Spain, Switzerland and the UK, but that documentation is designed to be easily extended into other jurisdictions.