The euro covered bond market will likely remain closed for the next two weeks in “the heart of summer”, according to bankers, and although activity continues in the US dollar and sterling markets, issuers are expected to prefer senior unsecured as spreads tighten.

The only public euro-denominated issuance today (Monday) was a Eu150m tap of a July 2031 issue for the German state of North Rhine-Westphalia. The only benchmark financials issuance came from BNP Paribas and HSBC, who were pricing sterling-denominated senior unsecured benchmarks.

The last sizable euro-denominated covered bond supply came on 20 July, when Commonwealth Bank of Australia sold a Eu1.25bn 10 year issue and HSH Nordbank tapped a April 2023 Pfandbrief by Eu350m.

Bankers said, however, that market conditions are extremely favourable for issuers, with spreads in some sectors hitting lows for the year and demand having built up on the back of the lack of new supply. Strong US non-farm payrolls last Friday and the announcement of a package of stimulus measures by the Bank of England last Thursday are also seen as supportive.

“The non-farm payrolls were stronger than expected and that gave the market a boost, while the Bank of England’s announcement on Thursday also helped, so conditions are conducive,” said a syndicate official. “However, on the euro side it does feel like we’re in the heart of summer.”

Other bankers agreed, noting that secondary market activity has also been very limited, with the ECB also cutting back its purchases, according to traders.

“I expect this week and next will be very quiet in covereds,” said another syndicate official. “The market is wide open, but there is no great desire to do business.

“All we have today is this sub-benchmark SSA tap, and in euros I think SSAs are the only show still in town.”

However, bankers predicted that the euro market will be closed for only two weeks, with issuers potentially returning the week commencing 22 August.

“I don’t see anything able to move market conditions by then,” added a syndicate official. “We have just had a very positive non-farm payrolls and the calendar looks clear until the next ECB meeting in September.

“For the weeks of the 22 and 29 August, there won’t be any game-changer.”

Bankers said that US dollars present an attractive option for many issuers, with the market still open and with pricing equivalent to that available in euros. They also said that the sterling market now offers better value, after substantial spread tightening since last week’s Bank of England meeting.

“Dollars are still active across the sectors, and in general sterling markets are looking strong, so there could be more opportunities there,” said one.

However, bankers said that most issuers will probably prefer to tap the senior unsecured market in these currencies, while conditions are supportive and spreads are compressed.

“Yes, covered bond spreads are very tight, but senior is also looking very attractive for issuers,” said a syndicate official. “Sterling spreads in particular are very sexy.

“It is understandable that issuers are willing to take out senior now, rather than covereds, and benefit from these amazingly tight spreads without using up collateral.”

Sterling supply from UK issuers will also be limited in the coming months on the back of a new Term Funding Scheme (TFS) announced by the Bank of England on Thursday, bankers added.