Covered bond issuance could resume this week, according to bankers, after EBA stress test results on Friday caused no concern, with fundamentals supportive and US dollars in particular an attractive option, and some forecast an active summer after one of the quietest Julys in recent years.

The European Banking Authority released the results of the EU-wide stress test on Friday night, and bankers said the wider market reaction had been positive, albeit limited, after the tests showed that the banking system has clearly strengthened its capital base and contained no surprises.

“It was pretty well documented in terms of what the market was expecting,” said a syndicate official. “The focus was obviously on Italy and on Banca MPS, but for covered bond land it was a bit of a non-event, as expected.

“It was never likely to be something that derailed the market.”

No benchmark covered bonds were sold last week, while only one euro-denominated benchmark emerged in the financials senior unsecured market – a Eu2bn long 10 year issue for Wells Fargo that attracted Eu5bn of demand on Tuesday.

“With the stress test, two central bank meetings and quite a few issuers reporting last week, it feels like everyone decided early to let the week pass us by,” said a syndicate official, “despite the quite conducive conditions demonstrated by Wells Fargo.”

Supply in July was low overall, with Eu3.25bn of new euro benchmark supply and Eu1.6bn of taps making it the quietest month of July since 2012, and compared with some Eu17.75bn in July 2015.

Bankers said that this could mean that a number of issuers are prepared to launch opportunistic trades in the coming weeks, with last week being the busiest week for reporting of European banks’ Q2 results, and with many others set to exit blackout periods this week.

“With the stress tests out of the way and an increased number of issuers out of blackout we probably can move on with issuance for the weeks to come,” said Armin Peter, global head of debt syndicate at UBS. “While we are in the midst of the summer here in Europe, I don’t believe that the screens will remain quiet.

“As market technicals are at their strongest and US dollar levels in particular looking attractive, I would be very surprised to not see an increase in activity, despite the summer period.”

Another syndicate official agreed that US dollars are a good option.

“The US runs to a different schedule,” he said, “and while supply has been fairly light, MüHyp’s Eurodollar showed the potential of that market.”

MünchenerHyp sold a $600m (Eu537m) three year Pfandbrief on 12 July, which bankers said had raising cheaper funding than would have been achievable with an equivalent euro benchmark.

The German issuer’s deal was the first US dollar-denominated benchmark covered bond since the markets closed in the run-up to the UK’s Brexit referendum, with the last previous one having been a $1.5bn (C$1.96bn) five year for Bank of Montreal on 8 June.

Bankers noted that through the summer the US dollar market has looked increasingly attractive for issuers, with spreads tightening and pricing almost on a par with euros.

However, some bankers argued that most covered bond issuers will now wait until after the summer to tap the market.

“It is very difficult to predict,” said one. “Certainly the market is still fundamentally strong, but things are starting to dry up as more and more people take their holidays and I do not get the sense this is a big pipeline.

“Last week, it was not as if we had lots of issuers saying that they were waiting until after the stress tests to do deals. There could be some opportunistic issuance, but I still expect a rather modest week.”

Bankers said that any issuance that does emerge this week will likely be frontloaded, given a Bank of England meeting on Thursday and the announcement of US non-farm payrolls on Friday.

“Today, I think a lot of accounts are still looking at and digesting Friday’s news, but Tuesday and Wednesday look like a good window,” said a syndicate official.

Bankers also noted that covered bond spreads had ground tighter through July, on the back of the lack of supply, while the majority of issuance was focussed in the eight to 10 year part of the curve.

“Yields are going nowhere quickly,” said a syndicate official. “So unless you fancy following CIBC’s example, the long end is still the place to be.”

CIBC on 18 July sold the first non-Eurozone benchmark covered bond to offer a negative yield, a Eu1.25bn six year that attracted over Eu2.5bn of demand.