The flare-up of market stress and the prospect of other potentially destabilising events such as French presidential elections could and should encourage issuers to tap the market sooner rather than later upon any stabilisation, said syndicate officials, whose outlooks were mixed this (Thursday) morning.

Speaking after a big market rebound yesterday (Wednesday) and amid a positive start to trading sessions this morning, some syndicate bankers were positive about the covered bond market.

One noted that secondary market spreads are stable, except those for peripheral issues and some recent core European deals.

“If you look at secondary market spreads they haven’t budged,” he said. “There’s no real selling pressure, which is a strong positive.”

Technicals continue to outweigh a weaker wider market backdrop, he said, with issuers having raised 60%-70% of their funding needs and upcoming blackout periods likely to mean there is “even less supply”, thereby adding to the technical support already at play.

However, he suggested that issuers will need to offer “a bit of juice” when tapping the primary market after this recent downturn , with new issue premiums of around 5bp a rough guide as to what higher quality issuers will need to be prepared to pay, and “a touch more” for lesser quality names.

A return to the 15bp or so of new issue concession that was on offer at the beginning of the year would not be necessary, however, he said: “Not in that ballpark.”

His only serious worry was the impact that upcoming French presidential elections could have on the sovereign’s spreads, to which French covered bonds are highly correlated, and that some significant widening is to be expected. French issuers would be advised to try to come to market before the elections, according to the banker, who in general thought it better to take advantage of positive conditions when they are available.

Another syndicate banker said that the secondary market was reasonably supportive, with much of a recent deterioration in sentiment not yet reflected in cash, but focussed on indices and CDS.

“The result is that if spreads back up a bit investors are happy to step in and pick up cheap offers,” he said.

Investors clearly have a lot of cash to put to work, he added, and syndicate officials are hoping that a stable tone from yesterday can persist to render market conditions conducive for issuance next week.

Another syndicate official early this morning referred to mixed feelings, citing yesterday’s rebound but mixed spread moves and a lack of conviction despite screens indicating improvement.

One banker noted that market conditions improved yesterday but that this did not look to be continuing today, citing comments such as that from ECB Governing Council member Klaas Knot on Wednesday about Spain being the “biggest problem” in the euro-zone, and an Italian auction that was “OK” but not enough to drive the market in the right direction.

Comments from ECB executive board member Benoît Coeuré yesterday about a possible reactivation of the central bank’s Securities Markets Programme (SMP) helped peripheral government bond spreads to tighten yesterday.

However, the syndicate banker said that he feared a return to a state of market similar to that of October last year, and that it is difficult to identify potential good news to boost sentiment. He, too, referred to the French elections as a potential source of volatility for the wider market if Socialist Party candidate François Hollande is elected.

He pointed to the return of market participants after prolonged seasonal holidays as potentially helpful, and said that a positive to take away from the recent flare-up of market stress – “back to reality” – is that some issuers may have “learnt a lesson” and will come to market when opportunities are there rather than wait for spreads to tighten further, a strategy that many syndicate officials previously said was in evidence.