The $2 billion covered bond sold by Canadian Imperial Bank of Commerce on Wednesday has reignited speculation that there's a need for a market for such bonds in the U.S. But considering the current state of U.S. banks, it may not be a good idea.

Covered bonds are similar to securitized bonds with the difference that banks that issue them keep the loans -- often mortgages -- on their balance sheets. They are already popular in Europe and Canada, but despite predictions since even before the crisis that growth of a U.S. market is imminent, one has not developed, mostly due to a lack of regulation.

The appeal is that covered bonds could provide banks with much needed financing and boost mortgage lending, as the Financial Times noted.

But remember, covered bonds are backed by the underlying loans as well as by the bank issuer since the loans stay on balance sheet. That means, if the mortgages are in default, the banks are on the hook. It also means that banks issuing covered bonds need to have sound balance sheets, which still isn't the case for most U.S. banks.

"The US market has never developed, largely due to the lack of legislation codifying the treatment of covered bonds if the issuing bank were to fail and to be seized by the Federal Deposit Insurance Corp, whose mandate is to protect depositors," according to the FT.

And why would investors buy covered bonds from U.S. banks anyway?

For one, covered bonds offer low yields. And even though they are typically safer than mortgage-backed securities, that isn't the case these days because of the Federal Reserve's mortgage buying program.

As the Wall Street Journal argued Thursday, even after the Fed ends its purchasing program in March, investors will find MBS a bargain compared with other bonds and could earn them some extra yield without taking too much risk. That prediction has prompted optimists to reject the idea that the MBS market will collapse and mortgage rates will rise once the Fed exits the market.

"The optimistic view hinges on the government remaining an enormous presence in the mortgage market, both through its mortgage-backed securities holdings and the widespread expectation that it could jump back in if the market falters," according to the WSJ.

If that's the case, MBS clearly has more appeal to investors than covered bonds. If U.S. investors really want covered bonds, they should stick to buying dollar-denominated covered bonds from stronger banks like Canadian ones, which are more regulated on that front. They should stay away from covered bonds issued by U.S. banks, at least until regulation, currently still being discussed, is in place.