Covered bond issuers were biding their time today (Monday), with no mandates announced, as sexual assault charges against IMF managing director Dominque Strauss-Kahn (DSK) added to uncertainty over the progress of EU support measures. One syndicate official even suggested the market could remain slow for weeks.

The lack of concrete progress on new issues today came even though several issuers were said to be looking at the market.

Dominique Strauss-Kahn

“But they are not willing to move,” said one syndicate official, “and I don’t blame them. There are two problems.

“Firstly, absolute yields – we are losing basis points every day on the 10 year swap rate and I’m not sure that a lot of investors are willing to buy at these levels.”

The second reason he identified was the charges against Strauss-Kahn over the weekend. Others agreed that his arrest had only increased uncertainty over the prospect of progress on EU talks, which was already in focus with the Ecofin meeting on the calendar for Brussels today.

“Unfortunately, Strauss-Kahn has had an impact,” said another syndicate official, who said the case had muted market sentiment. “The fact he didn’t manage to meet with Angela Merkel means there will be a slight delay on Greece.”

However, he said that market participants were focusing too much on the event.

“Fundamentally, if the whole Eurozone is growing at a decent enough pace, there isn’t much to worry about,” he said.

Data released on Friday showed that the German and French economies grew more strongly than expected in the first quarter, and even Greece recorded 0.8% GDP growth after four quarters of contraction.

Another banker suggested that issuers were biding their time, waiting for news out of the Ecofin meeting.

“Tomorrow is the earliest we could see issuance,” he said, “but on Wednesday issuers will have a real idea of whether to issue this week or next.”

French names were high up several market participants’ lists of potential issuers, with CIF Euromortgage said to be a candidate for a medium to long dated issue, BNP Paribas mentioned, and Société Générale said to be roadshowing its new SFH. Despite the low level of yields, one banker suggested that a long dated transaction might work.

“There hasn’t been any long end supply for a whole, so a long trade will be well bought up,” he said.

He also added that it would be “very easy” to get a transaction done this week – a sentiment echoed by some other syndicate officials. One said that issuers’ prospects were being improved by the dramatic slowdown in supply since the first quarter.

“Scarcity is playing a key role now,” he said. “Many issuers are very well advanced in their funding for the year and April saw limited supply, but investors with plenty of liquidity.

“It will probably go on like this in covered bonds for some time and I’m not sure we will be talking about oversupply for at least a couple of months.”