The covered bond market remains in good health, with demand high and new issues performing, bankers said today (Friday) after a third week of well-absorbed supply, but expectations differ as to whether issuers will continue to tap the market going into August.

Four euro-denominated benchmark deals were brought to market this week, with supply totalling Eu4bn, while Bank of Nova Scotia sold a £400m three year FRN on Tuesday and DBS yesterday (Thursday) sold a $1bn three year issue, the inaugural covered bond from Singapore.

“We’ve had a reasonable week with the covered bond market functioning well and absorbing a good variety of deals,” said a syndicate official. “It’s been good days at the office all round.”

While syndicate officials agreed that market activity would slow significantly next week, they differed as to whether any further covered bond issuance was likely.

Some said supply would dry up until mid-August, with holidays in some German states beginning this weekend and with many issuers having achieved their funding targets

“It’s clear from the issuer side over the next two weeks nothing will happen,” said one. “There will probably be one or two unexpected coincidence trades could happen next week, or a tap or something, but that can’t be considered a pipeline.”

The syndicated official added that this summer break would likely only last for around two weeks.

“It will not be a long holiday,” he said.

Agreeing that new deals were unlikely, another syndicate official said that, while market conditions were supportive, the absence of some accounts could make execution more difficult.

“The question for issuers from next week is whether there being fewer investors sat at their desks makes new issuance a bit too risky,” he said. “I think most will decide the answer is yes.”

However, other syndicate officials said that another wave of deals, albeit a smaller one, could not be ruled out.

“Broadly it is clear that investors are still around and issuers still have more to do,” said one. “We’re seeing issuers trying to cram transactions into late July and I’m sure that will continue into early August.

“It still feels as though September is going to be crowded, too. I don’t think it will be a quiet summer.”

The syndicate official said that peripheral issuers in particular would be more likely to tap the market in the coming weeks after a Banco de Sabadell senior unsecured deal was pulled on Wednesday. The Spanish bank is understood to have gone out with IPTs of the 140bp over mid-swaps area for a Eu500m four year deal before postponing the senior trade.

“That market looks rockier,” he said, “which suggests peripheral issuers who want to access the market over the near term are likely to look towards covered bonds rather than other asset classes, and that should be good news for covered bond supply.”

Another syndicate official, who worked as a lead on a Eu1.5bn five year Bank of Montreal deal on Tuesday, said many investors are still at their desks, noting that over 80 accounts participated in that trade.

“It will definitely be a quieter week next week,” he added, “but more issuance is possible, and I certainly would not rule it out.”

Meanwhile, syndicate officials said the market is still constructive and predicted that it would remain so beyond any summer lull, citing a FOMC meeting on Wednesday as having thrown up no negative surprises.

All of the week’s euro benchmarks had been well received, they said, with one syndicate official calculating that the deals had an average subscription level of 1.7. He said that even the week’s tightest priced new issue, a Eu750m five year from Münchener Hyp that attracted Eu1bn of orders at 17bp through mid-swaps, was well digested.

“I don’t foresee there any kind of change in market sentiment,” he added.

Each of the week’s new issues was also performing on the secondary market, syndicate officials said, while also noting that secondary curves in general had tightened by 2bp-3bp over the last two weeks.

“This shows that the covered bond market is strong,” said one, “and I don’t expect that to change.”

However, another syndicate official noted there was little turnover on the secondary market.

“You have to take that secondary performance with a pinch of salt at the moment,” he said. “With the focus being on the primary market there hasn’t been much activity on the secondary.

“But even based on little flow, it is encouraging to see that these deals are being marked tighter.”