Falls in equity markets this (Monday) morning attributed to US travel restrictions and a continuing rise in yields are not expected to negatively affect the covered bond market, and bankers suggested such weakness could increase interest in low beta issuance as banks begin to exit blackout periods.

Equities were down across Europe this morning, following similar losses in Asia, with US stock stock futures lower. The weakening of sentiment was attributed to uncertainty over the impact of the US government’s suspension of some immigration and widespread opposition to president Trump’s executive order from foreign governments and major global companies.

“It’s nothing too severe, but markets have taken a hit,” said a syndicate banker. “It’s partly the fact that some of the Trump administration’s early policies have been less fiscally beneficial than were previously expected, so some people are revaluating their ideas on the direction the US is taking and how things like trade and economic growth will be affected.

“After what has been an extremely strong run for equities, it felt like a correction was due.”

Spurred on partly by the weaker tone, but also on signs that inflation is rising faster than expected, yields of certain European government bonds continued a recent rise today, with the periphery and France particularly affected. OAT yields in the 10 year part of the curve were around 5bp higher this morning on the back of headlines regarding the upcoming French presidential election, after outsider Benoît Hamon won the Socialist party primary at the weekend.

However, bankers said such moves in rates and the weakening of wider market sentiment had not yet had a discernible impact on the covered bond market, which is well supported by technicals, and would be unlikely to dissuade issuers from advancing any issuance plans.

“In fact, if you look at last week’s supply, spreads are still grinding tighter,” said a syndicate banker. “Crédit Agricole’s recent three tranche deal is probably the best gauge of that and it’s showing good performance, with the longer tranches trading as much as 3bp inside re-offer, in line with where it was on Friday.

“Markets are weaker and there is uncertainty in the air, but is it something that would have persuaded me not to put a covered bond on screen today? Not really.”

Another syndicate banker agreed.

“I don’t think these worries will stop people issuing, even in US dollars,” he said. “I still don’t expect we’ll see much this week, mind you.”

The recent scarcity of covered bond supply – with Crédit Agricole’s Eu2.5bn, long eight, 15 and 20 year OH offering on Wednesday the only euro benchmark issuance since 18 January – was attributed to the flurry of activity at the start of the month and to many European banks still being in blackout periods. No benchmark issuance emerged in the financials space today.

“Things are fading out now after the flurry of supply, and there are not too many issuers left who are able and have not already been active,” said a syndicate banker. “But now that the US has rolled out of its blackout period, Europe is next.”

Covered bond issuers from a range of jurisdictions report their results this week. SEB and BBVA will be the first, on Wednesday, with ING and Deutsche – the first issuers in the Benelux and Germany to report this year – among those that will follow on Thursday.

Bankers said the blackout season would continue to moderate supply, but expect a pick-up in issuance compared with last week’s lone euro benchmark.

“Given month-end flows, issuers may wait until 1 February (Wednesday), but after that the window is open,” said one. “The calendar is full with macro events, with the Bank of Japan meeting tomorrow, the Fed meeting Wednesday, the Bank of England due with its interest rate decision and quarterly inflation report on Thursday, and US non-farm payrolls on Friday – but those are all widely expected to be non-events.”

Should the weaker tone persist over the coming days, bankers said more issuers could turn their attentions to the covered bond market.

“If this continues, you might find that banks who were planning higher beta transactions after emerging from their reporting periods might reconsider whether this is an appropriate time for such a trade, and might revert to a safer, more modest covered bond,” said a banker. “But on the back of just one weak session this morning, it doesn’t feel like we’re there yet.”