A hesitant opening to European markets this (Monday) morning did little to firm up the chances of benchmark covered bond issuance this week. Syndicate officials have nevertheless been debating the appropriate tactics for any issuer that should seek to make an early move into the autumn market.

A feeble opening for European markets had by mid-morning given way to some improvement, with equity indices all having moved into positive territory, after Asian indices staged a late rally. Credit indices also retraced some earlier losses, according to syndicate officials.

But there was little clarity on the prospects of a resumption of benchmark covered bond supply this week. One syndicate official said that he would like to think issuance would be possible if market conditions stabilised.

“But it’s difficult to know who,” he added. “The market would love to see something out of Germany, but the issuers that are best suited to reopening the market are often the ones that are best funded.”

According to another syndicate banker technical factors are supportive of covered bonds, with volatility the main obstacle to issuance. He said that an Austrian, Dutch, German or Nordic issuer would have to be the one to reopen the market, and that whoever did so would have a “first mover advantage”, benefiting from good execution and having to pay only a very small new issue premium. He referred back to the market’s reopening in January when, for example, ABN Amro had to pay 10bp more than ING when it tapped the market a day later than its peer in the same, seven year maturity.

But another syndicate banker did not feel that being the first to launch a deal after the summer break would bring material benefits for an issuer, describing any benefit as being more of an “egocentric” nature rather than making economic sense. Indeed being the first to tap the market could be disadvantageous, he added, because the issuer in question might have to adopt a cautious approach.

He said that new issue premiums in the range of 5bp-10bp were being discussed by some syndicate officials, but that in his view a “fair” premium of around 5bp would suffice for a “safe name and a conservative maturity”.

The market was in wait-and-see mode with not everyone yet back from holidays, he said, although it was not a matter of if, but when the benchmark market would reopen, he added.

French issuers were considered among the less likely candidates to lead a reopening of the market by some market participants.

“The first mover can’t be French,” said one. “They are under too much pressure already, and can’t take the risk.”

He added that another issue holding back activity is the prevailing very low level of yields.

“It would be close to impossible to reach a 4% coupon,” said the banker. “It would be a 3.5% coupon.

“Investors are going to have to get used to not getting this 4% going forward, and the lower yields, because I don’t see this changing anytime soon.”