Major market moves may have made covered bonds too expensive for some investors but supportive technicals and more stable conditions mean deals can be done next week after Ascension tomorrow (Thursday), bankers said today, although only sub-benchmarks are officially mandated.

Ahead of a public holiday for Ascension that will close many European jurisdictions tomorrow, bankers said volatile market moves that came on the back of a sharp rise in Bund yields could negatively affect demand for covered bonds as their relative value to sovereigns has suffered.

“The covered bond market doesn’t know what to do next,” said a syndicate official. “It has a problem because SSA spreads have widened whereas covered bond spreads are just 1bp or 2bp softer, if they have moved at all. That means in a lot of people’s eyes that covered bonds are too expensive.

“It will be interesting to see which breaks first – whether secondaries widen, or whether someone launches a new issue with a significant premium.”

The syndicate official said an increase in outright yields might make covered bonds more interesting to some investors, but argued this would not offset lower demand.

“The back up in yields is helpful,” he said, “but covereds still need to look compelling versus sovereigns.”

Another banker agreed that covered bonds looked less attractive, but was optimistic that new deals could be done next week.

“The shift in relative value is something people need to be aware of but covered bonds are well supported by technicals,” he said. “The ECB is buying, there is a lack of supply, and investors have a lot of money to put to work. Issuers are waiting, but when investors finally see new deals I think they will receive them well.”

The banker said that although the wider market was weak yesterday (Tuesday) – with 10 year Bund yields having moved in a 15bp range intra-day to end wider – the picture today looked brighter, with equities up 1% across Europe, credit indices tighter and Bund yields lower.

Another syndicate official said he did not expect any firm mandates to be announced this afternoon, owing to the shortened trading week and with issuers awaiting sustained stable conditions, but added that activity should increase next week.

“The number of conversations going on about new issues is increasing,” he said. “Markets permitting, I think next week should be lively.”

Finland’s Ålandsbanken is expected to come to the market with a Eu250m issue next week, after having completed a roadshow yesterday.

A syndicate official at one of leads Commerzbank and Nordea said the deal had not been delayed on account of the wider market volatility but that the plan had always been to launch next week, with public holidays tomorrow narrowing the window for new issues.

“We thought it would be appropriate to take time and allow investors to prepare,” he said. “Right now the covered bond market is happily undersupplied. It looks promising for next week.”

The new issue’s tenor has not been decided but a five to seven year maturity is most likely, said the lead syndicate official.

In October 2014 the Finnish issuer sold a Eu150m four year deal, which was at the time its largest single-tranche covered bond. The new issue will be Ålandsbanken’s largest and will be backed by its Finnish cover pool.

Ålandsbanken was on Monday joined in the near term pipeline by Kreissparkasse Köln, which is set to issue a Eu250m eight year Pfandbrief next week.