A weakening of the market has contributed to ANZ NZ holding off on an awaited euro covered bond, according to a lead banker, and tomorrow is seen as the only logical window in a likely shortened week, but a back-up in yields could offer greater flexibility for maturity choice.

An ECB decision to keep its monetary policy and purchase programmes unchanged on Thursday disappointed the market, resulting in a risk-off session and sell-off in government bonds on Friday.

ANZ New Zealand had been expected to sell a mid-to-long dated euro benchmark covered bond this week, having completed a European roadshow on Friday. ANZ, BNP Paribas, DZ Bank and UBS have the mandate.

“This slide in the Bund future, general weakening of the market and risk off mode has taken some people by surprise,” said a syndicate banker at one of the New Zealand bank’s leads. “We assessed conditions first thing and decided that the market did not look particularly seductive.

“In addition, the New Zealand dollar/euro basis swap doesn’t look overly attractive at the moment, which was another reason to wait and give the market a chance to settle.”

The syndicate banker said ANZ NZ and its leads will reassess market conditions tomorrow (Tuesday) morning, and said the deal may not necessarily be launched this week.

Bankers said that covered bond issuance will likely be limited this week because many market participants will be attending ECBC/Euromoney events in Düsseldorf on Wednesday and Thursday.

“Given that much of the market will either already be at the ECBC plenary on Wednesday or on their way for Thursday’s conference, tomorrow is perhaps the only logical window this week,” said one.

Another syndicate banker agreed.

“It looks like the market is focussed on next week,” he said. “There are a handful of names from a range of jurisdictions that are monitoring the market, so I think next week could be quite busy.

“But there is also enough confidence in market conditions to wait until later in September or even early October, as it is not expected that there will be a widening of spreads.”

DBS Bank announced a mandate this morning for a series of investor meetings across Europe and Asia, commencing next Monday (19 September), ahead of a potential mid-term maturity euro covered bond. DBS is sole global coordinator and Deutsche Bank, JP Morgan, Société Générale and UniCredit are joint bookrunners.

The deal would be DBS Bank’s first euro benchmark covered bond, with the Singaporean issuer having sold a $1bn (Eu890m, S$1.36bn) 2018 issue in July 2015 and a A$750m (Eu503m, S$767m) three year in May.

Fellow Singaporean bank United Overseas Bank issued the first and to date only euro covered bond from Singapore and from Asia, a Eu500m (S$762m) five year issue, in March.

Raiffeisenlandesbank Oberösterreich is also expected to come to the market with its first euro benchmark covered bond later this month, and is set to complete a series of investor meetings on Thursday.

Since the euro covered bond market reopened at the end of August, all nine of the new benchmarks to have been issued have had maturities of at least 10 years. However, bankers said issuers could now have more options after the rise in yields amid last week’s sell-off, with the seven year swap rate up from 1bp last week to 8bp this morning.

“Now that the seven year swap rate is more firmly in the positive, this may open up opportunities for those issuers who felt cornered by the yield environment and were unwilling to do something longer dated,” said one. “We are now, temporarily at least, in a somewhat more flexible market in terms of the shortest possible maturity.

“Whether this will be a sustainable trend is in doubt, but maybe this back-up will help redefine the floor to a certain extent.”

Another syndicate banker said the rise in yields could also allow for the issuance of higher yielding longer dated deals.

“These slightly higher yields provide an opportunity to offer long or super long deals with a bit more juice,” he said. “If there is someone contemplating a deal who can act swiftly, there is now an opportunity.”

Bankers said the increased uncertainty in the market could also result in a slight increase in new issue premiums.

“I wouldn’t expect a big move, however,” said one. “The imbalance in the market, between high demand and likely limited supply, will continue to drive pricing.”