Dexia Kommunalbank is exploring returning to the benchmark covered bond market after an absence of some three years, having yesterday (Monday) announced a roadshow mandate, but public holidays and an ECB meeting are cited as otherwise constraining supply.

The German issuer, a subsidiary of Dexia Crédit Local and part of the restructured Dexia Group, has hired Barclays, Commerzbank, DZ Bank and HSBC to arrange its roadshow with fixed income investors to provide a credit update and overview of its euro public Pfandbrief programme. The roadshow is expected to last from 19 May to 23 May, and will take in Cologne, Düsseldorf, Frankfurt, Munich and Stuttgart.

Patrik Krämer, head of treasury at Dexia Kommunalbank, told The Covered Bond Report that the issuer is waiting to assess investors’ response to the roadshow before deciding if issuance is feasible.

“However, we have the feeling that the market is in such a shape that a Pfandbrief deal could work,” said Krämer. “We have seen from our asset and liability management that we are in need of funding levels that a covered bond could provide.”

He said the bank would aim for a Eu500m deal.

The last time the issuer came to the benchmark covered bond market was in May 2011, when it issued a Eu1bn three year public sector Pfandbrief that leads Commerzbank, Dexia, Helaba, HSBC and NordLB priced at 32bp over mid-swaps.

“This marks a general change in Dexia,” said a syndicate official. “It said goodbye to the benchmark market, but now it has decided to return.”

In contrast to Dexia Municipal Agency, which was sold to a new credit institution and became Caisse Française de Financement Local (Caffil) as part of the restructuring of the bailed-out Franco-Belgian Dexia group, Dexia Kommunalbank (DKD) was kept as part of the Dexia group and will be managed in run-off mode without any new lending.

DKD has three covered bond redemptions coming up over the next several weeks, according to a lead syndicate banker: Eu800m at the end of May, Eu1.2bn on 5 June, and Eu360m on 10 June. The outstanding amounts are smaller than the original deals because of a public sector Pfandbrief buyback that DKD carried out in April-May 2012.

In addition, Dexia redeemed government guaranteed debt in January, said the syndicate official.

He said that any prospective deal would be supported by these redemptions, adding that DKD would be looking “to excite investors” with any potential deal.

DKD’s mandate is the only primary market-related announcement in covered bonds, with no new issuance having been launched since Bank of Montreal and Compagnie de Financement Foncier sold deals last Tuesday (29 April). Syndicate bankers this morning said conditions are constructive but that the covered bond and broader FIG market is quiet, and looks set to remain so for the rest of the week.

Yesterday was a public holiday in the UK and Thursday is a public holiday in France as well as the date of a meeting of the European Central Bank (ECB) Governing Council, so issuance windows are limited, according to syndicate bankers.

“The market is quieter than expected,” said one syndicate official. “There may be activity in the second half of the week, but with the ECB meeting on Thursday it is unlikely.”

He added that recent transactions have shown “what works and what does not work”, noting that any issuer looking at five year and seven year maturities would need to be aware that a new issue premium will be required to “attract the top investors”.

Another syndicate official said that issuers appeared “tentative at the moment,” suggesting that they needed more time to warm up following a couple of public holiday-shortened weeks in Europe. However, he added that there was “no real justification” for not issuing.