Appetite for covered bonds in the wake of the Japanese natural disasters could be tested shortly by a three and a half year Pfandbrief benchmark for Berlin-Hannoversche Hypothekenbank, with others watching to see if they can take advantage of improved euro-zone sentiment.

Leads DZ Bank, HSBC, JP Morgan, Landesbank Berlin and UniCredit are checking whether investors are ready to commit to a new covered bond issue after the events in Japan.

A banker away from the leads said the market today was doing well, all things considered.

“When I came into the office I looked at the futures and they were slightly going up and now they’re all the way down,” he said. “I think people are just trying to assess their damage, but as hard as it sounds, I think whatever happened in Japan and will happen is at the moment not affecting us.

“As long as the global economy is not affected I don’t think there will be any problem with the covered bond market.”

Berlin Hyp

A syndicate official away from the leads said that he had heard price whispers of 10bp over mid-swaps for Berlin Hyp’s mortgage Pfandbrief.

“They’re a very down to earth kind of company,” he said. “I don’t think they’re looking for a huge size, but they’ll do okay.”

Another syndicate official away from the leads expected it to go smoothly.

“It’s a German Pfandbrief,” he said. “It’s obviously going to get sucked up by German accounts and given the lack of issuance and reduced supply in the sector; I think it’s basically a non-event.

“I don’t think it’s a true test of the market,” he added. “More pertinent would be something out of Spain or Italy.”

A euro-zone summit over the weekend granted a 100bp cut to the rate Greece is paying on bail-out funding and extended EU and IMF loan maturities, among other measures.

“The package at the weekend, at least the headlines seemed to pleasantly surprise some people,” said a syndicate official. “Equity markets are not really in negative territory and the market as a whole seems to be in reasonable shape.”

The iBoxx SovX index had tightened from Friday according to another syndicate official.

“I think we were 190 on the SovX on Friday,” he said. “We’re 177 right now, so that’s about 13bp tighter.”

Some Europeans government bond spreads also tightened, he added.

“Ireland is a couple basis points tighter but obviously Spain, Portugal and Greece are the ones benefitting the most here, obviously given what was decided over the weekend,” he said.

Bankers said that should Berlin Hyp’s deal go well, further new issue projects, including some from southern Europe, could proceed.

NIBC plans to start a roadshow for an inaugural benchmark covered bond on Friday with leads LBBW, Natixis, NIBC and RBS. It will take in Frankfurt and Munich on Friday, continue to London and Amsterdam next Monday, and end in Paris Tuesday (22 March).

The Dutch bank is expected to approach the market next week after the roadshow.