Bank of Queensland is unlikely to make use of covered bonds and will rely on residential mortgage-backed securities for secured term finance for the foreseeable future.At an investment conference hosted by Citi last week, Ram Kangatharan, acting chief executive of the bank, reiterated a previously announced target to cut the proportion of funding from mortgage-backed securities to around 10 per cent, from 18 per cent at present.Kangatharan also made clear that covered bonds may not be part of the funding mix, even though they are being pursued with vigour by most of the big banks.Under legislation recently adopted by Parliament, banks in Australia will be able to issue covered bonds secured by pools of housing loans and equal to eight per cent of their asset base. This is a common form of funding for European markets, and the pricing of covered bonds is usually cheaper than that of the unsecured term debt of banks (though unsettled markets this year have resulted in exceptions to this rule).In a follow-up interview, Kangatharan said that "It is definitely not our intention to use covered bonds at this time. It is an option, but it is not as attractive for us as for the majors."Kangatharan said that covered bonds "are non-amortising and over-collateralised… they are not a preferred instrument for us."We have set out a five-year plan to get the securitised part of total funding needs down to 10 per cent. The majors may carry eight per cent [of funding from covered bonds] but it is non-flexible and with over-collateralisation on top. I think secured funding is more favourable with RMBS."He said covered bonds were "useful as an additional tool. The theory was that they [the major banks] would be less aggressive in competition for retail deposits. That remains to be seen."