The first full week of trading in February got off to a quiet start in the covered bond market, which syndicate bankers this (Monday) morning said was seeking direction but in good shape to absorb further supply, although the deal pipeline looked thin compared with activity in January.

Mariano Rajoy, Spain's prime minister

“The pipeline feels very empty,” said one banker. “The sentiment right now is trying to find a good direction, therefore nothing is happening right now.”

The European Investment Bank tapped a September 2025 issue today, pricing a Eu250m deal at 28bp over mid-swaps, and syndicate bankers said that was the only deal in the market so far.

A syndicate banker said that scarce market activity in covered bonds did not come as a surprise given that issuance last month was above expectations.

“We saw covered bond issuance of Eu20.33bn in January, which is good if compared with a Eu80bn-Eu120bn consensus for overall issuance for 2013,” he said. “So as issuance in January represented almost a fifth of expected issuance for the year, I’m not surprised that things got more quiet now.”

Issuance this week and early next week could remain modest, especially in terms of German supply, he added, because of the start of Carnival celebrations.

“We would not advise to go for deals on Thursday or Friday this week or early next week because many investors such as insurance companies could be away from their desks,” he said.

Another said that he expected benchmark volumes this week to be similar to last week’s – but spread across more trades. A Eu1bn five year Berlin-Hannoversche Hypothekenbank mortgage backed issue was the only euro benchmark to hit the market last week.

Rates decisions from the ECB and Bank of England and a meeting of EU leaders are also events that could influence issuance plans, with syndicate bankers also noting that yields on Italian and Spanish government bonds had risen slightly – Bonos widened by around 10bp this morning to creep above 5.30% in yield terms, said one. Spanish prime minister Mariano Rajoy is under pressure because of reports of corruption.

The banker noted that German Pfandbrief spreads were a couple of basis points wider, a meaningful movement given how tight the covered bonds trade.

“But it’s not precluding or restricting access,” he said.

Indeed, syndicate bankers said the overall outlook is still positive for covered bonds, with newsflow providing for some distraction but not significant enough to derail any issuance plans.

“There is still a lot of cash to be placed,” said one banker.

Uncertainty in the peripheral countries could be beneficial for core jurisdiction issuance, said syndicate officials.

“Investors may reconsider core markets if the peripherals are no longer offering attractive spread levels,” said one.

Another said that the best candidates to tap the market in February are some core issuers that have not yet come to market this year.

“We haven’t seen any Austrian or Swedish trades,” he said, “and also there has been limited issuance from France, except for a CRH benchmark at the beginning of the year and a couple of taps, so I would expect some issuers from that country to tap the market soon, for example big names such as BNP Paribas, Crédit Agricole, or CFF.”

He added that UK and Australian issuers may also be looking at the euro covered bond market.