Improved market conditions and key euro-zone meetings this week could lay the foundation for a positive start to the new year, although benchmark supply in the coming weeks appears unlikely – albeit with taps still possible – according to syndicate officials.

Non-core sovereign bond spreads have been tightening, with Italian 10 year yields moving towards 6% and market sentiment friendly, said syndicate bankers.

“The market has been quite good since last week,” said one. “Government bonds have been performing.”

However, he said that liquidity in the covered bond market is “awful”, with bid-offer spreads wide, and that few accounts investing despite there being plenty of cash available. Issuance could be possible this week, he said, but would be more difficult next week given the impending year-end.

Another syndicate official said sentiment was OK and that a transaction could be executed fairly easily in the next couple of weeks, although he did not have the impression that issuers were keen to do so.

“People are being overly bearish”, he said.

Several key euro-zone meetings are being held this week, with German Chancellor Angela Merkel and French president Nicolas Sarkozy meeting this (Monday) afternoon, a European Central Bank governing council meeting on Thursday, and a European Council meeting on Thursday and Friday.

Another added that if the European Council summit went well, then the market could expect some taps next week.

“It’s quite late, so I don’t think we’ll see a benchmark, but maybe some taps,” he said. “It could mean a positive start in January.”