Pbb tapped a March 2019 Pfandbrief by Eu175m yesterday (Monday) and although it was a retention trade it came as syndicate bankers today said that market participants are preparing for a return to full activity, but with the supply impact of TLTROs still uncertain.

The Deutsche Pfandbriefbank (pbb) increase was executed by DZ Bank, Natixis, NordLB and UniCredit, four of the five lead managers that were on the initial deal, a Eu500m five year mortgage issue priced at 14bp over mid-swaps on 18 March – DekaBank was the other lead.

Yesterday’s tap was a retention transaction based on reverse enquiry and also covered some short positions, with the size fixed at Eu175m from the outset, according to a lead syndicate banker. There was no bookbuilding, and as such the leads did not provide any distribution statistics. It was priced at 102.09, equivalent to 34.6bp over German government bonds (the 1% Obl #168 February 2019), which was said to in turn be equivalent to around 2bp over mid-swaps.

Although the increase was not marketed more openly and was not being seen as a significant transaction by syndicate bankers this (Tuesday) morning they nonetheless said there are signs that the end of the euro bond markets’ summer recess is approaching.

“Things are picking up this week,” said one. “There were a couple of taps yesterday, people are coming back to their desks and asking for updates.

“We’re not in full liquidity mode yet but I think we will be from next week onwards.”

Credit Suisse also priced a tap yesterday, albeit a much larger one and of a senior unsecured deal, adding Eu500m at 48bp over mid-swaps to a November 2019 issue.

Several syndicate officials seemed to be tipping next week for the resumption of benchmark covered bond supply after the summer break, either saying that they expected deals to come next week or that they see no reason why there wouldn’t be given strong demand for fresh supply.

“There’s no doubt about the shape of the covered bond market,” said one. “The spread tightening over the summer is striking.”

He gave a couple of Dutch bonds as examples, saying that an ABN Amro Bank 2024 benchmark that was priced at 34bp over in January is bid at 9bp over, and an ING Bank May 2023 deal, from May 2013, is bid at 7bp over. Ten year deals for BPCE SFH and Belfius Bank from mid-June, meanwhile, have performed some 6bp-7bp, he said.

Geo-political uncertainty has been a challenge for markets for several weeks now, and an escalation of the situation in Iraq caused a spike in risk aversion around a week-an-a-half ago, sending Bund yields to all-time lows.

A syndicate official said that the bonds markets have recovered although they are still jittery, but that the covered bond market “has been pretty rock solid”.

Nonetheless, although expected to reopen shortly, the benchmark covered bond market is not set for a rush of deals, according to syndicate bankers.

“Everyone is hunting for the same mandates,” said one.

Nordic issuers have traditionally been among the first to tap the market after the summer break, and are understood to be some of the issuers that syndicate officials will be checking in with over the coming days in the hope of bringing deals for them to market.

A very supportive technical backdrop means that new issuance is very viable despite low yields and tight spreads, according to syndicate officials, but at the same time issuers are expected to consider waiting to tap the market in anticipation of levels tightening further, with the option of cheap funding via targeted longer term refinancing operations (TLTROs) on offer at the European Central Bank another factor influencing issuers’ decisions.

“The TLTROs is the big question,” said a syndicate official. “We know what banks’ funding plans are but they are a bit on hold now. Group treasuries have to decide if public deals make sense or if they should take the TLTROs.”