If Christian history is mapped to a day [1], dispensationalism arrives on the scene at about 10:30 pm. Covenant Theology (CT) arrives a bit earlier, about sunset, around 6:00 pm. These two systematic theologies are both new [2]. Newness is what it is, it doesn't make the theology wrong, but it is fair, I'd say, that the newer the theology the more scrutiny it deserves.
CT's birth is the early 16th century as more or less a second wave of the Reformation. It then was developed more, to something like its present state, in the 17th century. (So it is really more like 7:15 pm when CT as we know it arrives on the scene.)
The signature feature of Covenant theology, which owes its introduction to Zwingli in about 1525, is the all-inclusive Covenant of Grace, [3] which according to CT dogma is the covenant between God and men from the time of Adam the future end of history. All other covenants, including the New Covenant, are under the Covenant of Grace umbrella. They are, in many ways, perfectly analogous to dispensations in dispensationalism.
What caused Zwingli to introduce the Covenant of Grace and hence give birth to CT? It was his fights with those dunking rascals, the Anabaptists. Zwingli wanted to defend the practice of infant baptism, [4] and he "discovered", "uncovered", "rediscovered", or "invented" (take your pick) this explanation, which is certainly plausible: The Old Covenant and the New Covenant are different administrations of the overarching Covenant of Grace, and the in the Old the covenantal sign and seal was circumcision, while in the New the sign and seal is baptism. A seal that was given to infants previously should not, in the new era, suddenly be withheld. And if anything, it should be expanded, i.e. to baby girls.
That is the genesis of Covenant Theology. Trying to make it more than that is engaging in revisionist history. Right or wrong, it is what it is.
Read the words of Bavinck: [5]
This covenant [of grace] was the solid, biblical, and objective foundation upon which all the Reformers unanimously and without exception rested the legitimacy of infant baptism. They had no other deeper or more solid ground.Bavinck is spot-on. But remember, infant baptism came first; the reformed theological explanation came later. In physics it would be as if the data came first then the theory to explain the data, as opposed to the theory coming first and predicting the data, which is at least 40% cooler.
[1] A literal, 24-hour day. Not the Hebrew yōm, used for example in Genesis 1, which is an indeterminate time period, even, Ken Ham, when used in an ordinal sense, as in Hosea 6:2.
[2] A lot of covenant theology proponents (and dispensationalists, and Baptists, and most other schools of this and that) will claim their theological origin actually lies in the early church. They are wrong. They are projecting. We have a very accurate description of the early church, you can find it here.
[3] It is not a strong criticism, but I'll make anyway: The term Covenant of Grace does not appear in scripture.
[4] His motivation, we can hope, was purely theological. But some say it was political, that infant baptism in state churches was a way for the state to maintain considerable influence over the populace, as it was accustomed to under Rome. It would, some say, have been a bad political move if the churches of the reformation had adopted credo-baptism which would have further diluted state influence.
[5] Bavinck, Reformed Dogmatics, 4.525
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