Investors spoken to by The Covered Bond Report suggested that a lack of secondary market liquidity and low yields could influence their appetite for any new issues and the spreads they are willing to accept – although all were open to the prospect of a market reopening.

A fund manager in Germany told The Covered Bond Report that he was taking a neutral stance in covered bonds vis-à-vis his benchmark and that switches rather than increased covered bond exposure was his focus.

“We are on the cautious side,” he said, citing the unresolved sovereign debt crisis and unconvincing political efforts in this regard, and disappointing recent economic indicators as influencing this outlook.

He said that his firm had in the past leaned towards a bullish stance on covered bonds, but that the asset class had come under pressure during recent weeks, triggering some losses and therefore a revised, more neutral stance. If a Pfandbrief were to hit the market he would not buy it outright, but consider investing if a switch could be made, he said.

However, he added that the state of the secondary market meant that switching positions was not straightforward and another investor agreed, suggesting that the buy-side would be calling for new issue premiums to compensate for this.

A portfolio manager at an insurance company said that while his house had funds available for investment, absolute yield levels were too low and that because it was difficult to generate interest rates of around 4% or more his firm would not be active in new covered bond issues should they arrive.

In addition, internal rules prohibit him from investing in debt issued out of Greece, Ireland, Portugal and Spain, he said. Together with limits on exposure to debt from other jurisdictions this meant that his investment activity would be very selective.

“It restricts where you can invest to generate the necessary spread,” he said.

But although he could imagine further problems arising at banks once there is clarity on the impact of writedowns on Greek government debt, he said that overall his institution expects spreads to tighten. Covered bonds are therefore still an asset class he would generally invest in, he added.

Another portfolio manager appeared more flexible in his investment options, although he said that late summer holidays meant his house would not be fully staffed during the period when issuance could pick up. And he suggested that although many issuers are primed and ready to tap the market, reduced investor availability on account of the still prevailing summer break meant that new supply would probably be launched next week rather than this – unless accounts that are back at their desk registered sufficient advance orders to give issuers and syndicate bankers the necessary confidence to proceed sooner.

The portfolio manager agreed with syndicate bankers’ recent assessments that – despite having stayed on the sidelines in recent weeks – investors are cash rich, saying that sufficient liquidity is available.

He cited UK and Nordic names as those that could prove the most interesting to him, in particular a credit such as Nordea Bank Finland, saying this was an issuer that could offer “a little bit more” than perhaps Norwegian or Swedish paper.