Market participants were noncommittal this (Monday) morning as to whether a slight upswing in the market today would lead to issuance before January, while investors gave mixed answers as to whether or not they would be prepared to buy before year-end.

“The big tension and pressure seems to have gone away for the moment,” said a syndicate official. “But the market cannot go back to normal immediately, and I’m not sure if this is a first positive change or just a pause in all the negativity.

“In general, I think we need to find good sentiment in terms of market mood before issuing.”

Another syndicate official said investors are nervous about putting cash to work, citing a widening of Bunds last week as a worrying development.

Belgium kicked off busy auction with new government on track

Investors gave a mixed picture of their readiness to participate in new issues. A fund manager told The Covered Bond Report that he would not consider any new deals this year, while another said he had little interest but would maybe look at new supply from a relative value perspective and consider switches. But a portfolio manager said he was open for new issues given ongoing flows into many of his house’s funds, and that he would not close up shop for another couple of weeks.

A syndicate banker warned against prematurely speaking of an end of new issuance for 2011, suggesting this was negatively skewing perception of liquidity. He said that market conditions were very fragile but that a few consecutive sessions like today, “and issuers will start looking”.

Another syndicate official said the rally was very slight, using the senior iTraxx as an example, which was 17bp tighter today at 340bp, but at the end of October was just over 200bp.

“If this rally does continue for the next few days,” he noted, “it’s possible – but only from very strong issuers – that we could see a transaction.

“But, it’s probably becoming increasingly unlikely that there will be a new issue, particularly with no news.”

Royal Bank of Scotland analysts said that a big policy summit announcement looks necessary to break the impasse in the primary market, and that a Eurogroup meeting tomorrow (Tuesday) will be policymakers’ next opportunity to make “big ticket” announcements that could re-open the market – although the analysts said the RBS view is that such announcements will not be forthcoming.

Five euro-zone sovereign debt auctions being held this week are likely to be key gauges of market sentiment, they added. Belgium kicked off this week’s auctions with a linker auction today, with an Italian conventional auction tomorrow and France and Spain due to auction debt on Thursday.

A syndicate official said “tomorrow is the size day” for auctions. Market sentiment appeared better today, he said, but taps are the only primary market supply he could imagine, at least in euros. He raised the question of whether sterling covered bond issuance could be possible given high redemptions in the currency in December.

Another syndicate banker said uncertainty is high.

“No one knows what will happen,” he said. “It’s all a gamble.

“Right now we’re in the worst financial mess the financial system has ever been in.”