Benchmark euro supply is expected to be limited this week, with issuers from core jurisdictions in no rush to pull the trigger on new issues despite monitoring the market, and peripheral spreads having come under pressure, according to syndicate bankers.

Covered bond spreads are said to have generally held their own despite some selling at the short end, focussed mainly on Spain, last week, as peripheral government and senior financial spreads widened.

A syndicate official said that “even” core senior financial paper came off tight levels by around 5bp, with some short selling in covered bonds at the short end, too – after three months of the latter being generally bid-only.

“Spreads in covered bonds probably widened a couple basis points in core, 5bp in French covered and up to 20bp-25bp in cédulas,” he said.

Another syndicate banker this (Monday) morning said covered bond spreads were “solid”, while another said that market sentiment was in general positive, and that conditions for senior financials had improved after a negative turn last week, with covered bonds holding their own.

Angela Merkel

One suggested that news that German chancellor Angela Merkel may agree to a temporary increase to the euro-zone “firewall” would lift sentiment, and that senior financial spreads stabilised on Friday after some widening last week, and “if anything they are slightly better bid this morning”.

A meeting of euro-zone finance ministers on Friday in Copenhagen is expected to reach a decision on whether or not to allow the European Financial Stability Facility to keep running when a permanent rescue fund, the European Stability Mechanism, starts in the middle of this year.

However, syndicate bankers did not seem to be expecting much supply in euros this week. One said he was not aware of any concrete new issue plans, but acknowledged that some Nordic supply was under consideration. If any is forthcoming it could be in dollars or euros, he said.

Themes from last week, such as a slowing of spread tightening and the periphery coming under pressure, look set to continue this week, he said.

Another said that issuers will continue to favour issuing unsecured debt rather than covered bonds given factors such as the differential between covered bond and unsecured spreads being back at the tight end of the historical range.

A syndicate official suggested Intesa Sanpaolo could launch a deal.

“I suppose if we’re looking at the European landscape, an Italian issuer is long awaited,” he said, adding that nothing was imminent.

Another banker was less positive about Italian issuance, after Spain widened at the end of last week.

“Spain has snapped back a bit and is stabilising at a slightly wider level, which will make peripheral issuance less likely,” he said. “However, it makes sense for Intesa to be the main name out of Italy.”

He noted that Intesa had demonstrated access to funding via the senior unsecured market.

A syndicate official said that the covered bond market was very quiet this morning, and that while some Nordic benchmark supply is possible, this also amounts to “wishful thinking”.

“The last thing that is missing is issuers saying they’re ready,” he said, adding that they are instead holding back and monitoring the market “from a very relaxed perspective”.

He noted that several Nordic issuers have the option of tapping the dollar or euro markets, and that they are aiming to do both in 2012.

He said that Danske Bank is looking at the market, but suggested that a deal could just as easily be put on hold as launched this week and that this depended on management’s decision.

HSH Nordbank is on a non-deal roadshow to update investors in connection with the release of its 2011 financial results.