The covered bond market should be open for deals next week if issuers choose to use it, bankers said today (Friday), as the wider market was seen closing the week on a positive note after recent volatility that contributed to a second straight week without euro benchmark issuance.

Noting that 10 year Bund yields had fallen slightly this morning, having closed at 0.70% yesterday (Thursday), bankers said the market was in better shape.

“Compared to the beginning of the week, this market has definitely improved,” said a syndicate official. “The turmoil in govvies and equities seems to have calmed down a bit.”

Bankers suggested the stabilisation may have been caused in part by a public holiday in many jurisdictions yesterday, but were optimistic the conditions would hold next week.

“Hopefully that is a true reflection of market conditions and not just down to a lack of liquidity because people have been away from their desks,” said one. “If it stays this way then there is no reason people can’t look at issuing deals.”

No new euro benchmark covered bonds were launched this week, for the second week in a row, with the last having been a Eu1bn seven year for Bank of Ireland Mortgage Bank on 29 April.

Another banker agreed that the tone is now more positive.

“Next week the market will be open,” he said. “Maybe some are scared of getting their fingers burned, but next week we should see issuers dip in.”

So far only sub-benchmark issuance is on the cards for next week, with Ålandsbanken and Kreissparkasse Köln due with Eu250m deals.

However, while stating that signs of stability could entice some issuers, another banker predicted that supply would remain modest for the rest of the month, with public holidays in some jurisdictions still set to narrow the windows for issuance.

“For me, June looks the better month,” he said, adding that higher redemptions next month would support supply.

According to UniCredit analysts, June has the second highest level of redemptions for any month going forward, with 20 bonds maturing for a total of Eu25.7bn. That compares with only Eu4.1bn of redemptions this month from five deals.

Bankers said new deals would stand the best chance of success in shorter tenors, but were unsure of how much of a premium issuers would have to offer.

“There will be some price discovery to do for whoever comes to market first,” said a syndicate official. “We are in a very different yield environment now compared to where we were a few weeks ago, so it will be difficult to calculate what is appropriate.”

Another syndicate official said that issuers may not have to pay up significantly with rates having backed up, because new issues will offer more yield.

“I think premiums of around 3bp-5bp should do,” he said.