Dexia Kommunalbank Deutschland (DKD) is expected to launch a public sector Pfandbrief early next week, after announcing a mandate today (Friday), while bankers said more core issuers were eyeing the covered bond market, which has remained unaffected by renewed uncertainty over Greece.

The German issuer (offices pictured) has mandated leads Commerzbank, Credit Agricole CIB, DekaBank, UniCredit and WGZ Bank for a trade that will likely come to market on Monday or Tuesday, according to a syndicate official at one of the leads.

Although saying that there are few comparables for the issuer – which is being wound down – the lead syndicate official noted that the issuer’s most recent benchmark, a Eu500m June 2019 deal priced in June 2014 at 27bp over mid-swaps, is now trading at minus 14bp, bid.

A seven year is the most likely tenor for the deal, he added, estimating this would put fair value at around minus 13bp-12bp.

A syndicate official away from the leads said he expects the trade to go well and be printed at a tight level. He added that the issuer’s relative absence from the market, with the June 2019 having been the issuer’s first covered bond since 2011, should help the deal, alongside supportive market conditions.

“There’s been a relative lack of supply in general, too,” he said, “and after a quiet couple of weeks in the SSA space as well there’s not been much for LCR buyers.”

Supply might pick up next week, he added, saying he expected two more deals to come to market next week from core issuers. Another syndicate official also said that the market should see more activity, after a week in which the market was subdued by holidays across some jurisdictions, chiefly Karnival in some German regions.

However, owing to market conditions issuers will still be more focussed on capital and senior unsecured trades, he said, even if senior unsecured supply has also been low.

“If you have a senior deal to do there is more of a rush, there’s always the risk Greece could blow up spreads,” he said. “With the ECB buying, the rates environment for covered bonds is going nowhere.”

Although talks on Greek debt have turned more negative than many market participants expected, the covered bond market is unlikely to be affected, he added.

“We see the same story every week – the private sector is buying, particularly liking peripheral names, and the ECB is buying everything,” he said. “The market is so well supported that it would take something catastrophic to threaten it.”

Another banker agreed, pointing to the success of this week’s two trades – a Eu500m no-grow five year issue from Société Générale SFH, one of the tightest ever priced non-German covered bonds at mid-swaps minus 8bp, and a UniCredit Bank Austria Eu500m 10 year deal, priced at 3bp over – as signs of the strength of the market.

He added the deals are today trading at what he estimated to be fair value, at mid-swaps minus 11bp, mid, and 1bp over, respectively.

“We have seen that the covered bond market has remained isolated from bad headlines,” he said.