Feds Support Creation of Covered-Bond Market in U.S.

The federal government has thrown its support behind the newest investment vehicle in the U.S. bond market. And although this may turn out to be good news for banks and Wall Street, I'm less than convinced it's good news for investors.

At issue are covered bonds -- a rarity in the U.S., but a popular investment in Europe.

Yesterday, the FDIC issued guidelines for how covered bonds would be treated in the event of a bank failure. Those guidelines -- which come several months after Treasury Secretary Hank Paulson signaled that covered bonds could help with the credit crisis -- are sure to create a surge in covered bond issues.

But I'm urging caution. Covered bonds are certainly safer than the mortgage-backed securities that have plagued the economy in recent months. But that doesn't mean that they're safe enough for most investors.

So before you call your broker, ask yourself: "What is a covered bond and should I buy one?'