Market conditions are stable and would support benchmark supply, but the primary market will probably be calm for the next two weeks due to summer holidays, said syndicate bankers this (Monday) morning, identifying the week of 19 August as when new issuance is likely to kick off again.

Canadian Imperial Bank of Commerce and Royal Bank of Canada kept market activity ticking over in July after getting new covered bond programmes registered under Canada’s new legislative framework, but supply has generally been muted since the end of June.

And according to some syndicate bankers this morning, a Eu1bn five year deal for CIBC on Wednesday could be the last new benchmark for a couple of weeks.

“We are in a bigger summer break,” said one. “The Canadians had some fun in the past weeks and now things feel more quiet.”

The market tone is generally positive and conditions are stable, they said, although this is more a function of market participants being on holiday than anything else. The market is open for deals, they said, while playing down the likelihood of this being acted on by issuers.

“Could you do a deal?” asked one. “Probably. Could you wait? Yes. It would probably be wise to wait.”

Several syndicate officials pinpointed the week of 19 August for the resumption of benchmark supply, with one noting that in 2010 the summer supply lull ended on 19 August, in 2011 on 24 August, and last year on 14 August.

In 2012 a UniCredit SpA Eu750m six year benchmark reopened the market – with a deal that was the first covered bond to come substantially through the respective sovereign – and the syndicate official said there is a strong case to be made for peripherals to be actively involved in a pick-up of supply after the summer break.

“August is where the technicals are very strong for the peripherals,” he said. “There is very limited issuance from a sovereign standpoint, but lots of coupons and redemptions.”

In addition, the upholding of a jail sentence for former Italian prime minister Silvio Berlusconi on Friday has not put Italian spreads under pressure, he said, with Italian bonds having outperformed other jurisdictions, and a bigger spread differential between senior unsecured debt and covered bonds has also made issuance of the latter more attractive, if funding is needed.

“My opinion is that as soon as issuers come back, from mid-August onwards, they, the peripherals mainly, should look to take advantage of the market,” he said. “September could be more challenging because of the elections in Germany so they should try to hit the window while it’s there.

“I wouldn’t be surprised if from 19 August the pipeline kicks off.”

Another syndicate official said that Nordic issuers are typically back from summer holidays early and are therefore “natural candidates” to kick-start issuance, but that it is too early to say at this stage.

Barclays analysts said that higher collateral haircuts for retained covered bonds, as recently announced by the European Central Bank, could boost peripheral supply as well as issuance from France.

“The new ECB collateral rules were partially introduced, in our view, to encourage replacement of retained covered bonds with public benchmark issuance,” they said. “The new supply, if it were to materialise, could provide buying opportunities.”

For example, they estimate that Portuguese banks have around Eu25bn of retained covered bonds as collateral with the ECB, and that under the new haircut charges the covered bonds are likely to face an additional 12% valuation markdown, translating to a Eu3bn funding gap.

“This may require Portuguese banks to return to the primary covered bond market (though the interest coverage rule and high potential funding costs may limit the incentive to issue),” they said, “which may provide investors new opportunities given there is very limited availability of Portuguese covered bonds in the secondary market.”

However, they said that the new collateral rules may encourage heavy users of retained covered bonds, which includes French banks, to tap outstanding benchmark bonds and replace the retained covered bonds used as collateral with the ECB with the new tap.

“From an investor’s perspective, such behaviour would make it more difficult to gauge the liquidity of outstanding benchmark covered bonds,” they said.

Fitch on Friday said that additional valuation markdowns for certain retained covered bonds may reduce liquidity for some banks that hold a lot of retained covered bonds – mainly banks in the peripheral euro-zone – but that the collateral changes are not a major threat to their liquidity, in particular as requirements were relaxed for other types of collateral, such as asset-backed securities.