The onset of European banks’ blackout periods will moderate euro covered bond supply next week, after an initial issuance rush eased in recent days, but syndicate bankers expect the market to remain receptive to any new issues, spreads having held steady with the exception of an Austrian blip.

Euro covered bond issuance this week fell 54% versus last week: whereas Eu12.5bn of euro benchmark issuance hit the market in the first issuance wave between Tuesday and Thursday of last week (3-5 January), this week just Eu5.75bn was issued across seven deals, four of which were sold on Monday.

“It has been another good week overall,” said a syndicate banker, “but it has slowed down, as you’d probably expect in the second week, and the market has maybe been a little less vibrant.”

The Eu18.25bn of benchmark supply sold so far brings year-to-date supply almost into line with that sold in the first two weeks of last year – Eu17.25bn. Bankers said the market is therefore on course to record a similar volume of supply this month as last January, when issuance totalled Eu24.25bn.

The flow of deals will be further moderated by European banks entering blackout periods in the coming weeks. JP Morgan, BAML and Wells Fargo are kicking off the reporting season today, and Spain’s Bankinter will become the first European bank to report its results, next Friday.

Spanish and Nordic banks are the first to enter blackout periods – Santander, Nordea, CaixaBank and Sabadell are among the next to report their results, towards the end of January – with covered bond issuers from France, Germany and other core European jurisdictions following shortly afterwards.

“We might get a few names looking to get trades done last minute, before they enter those silent periods,” said a syndicate banker. “But we have now seen most of the candidates that were expected to make early moves, and activity will slow down as the silent periods roll in.

“We probably shouldn’t expect another round of Spanish or Scandi issuance until the start of February.”

Another syndicate banker agreed.

“We have all been looking for those issuers with something still to do, but I get the sense that many of us are empty handed for now,” he said. “The pipeline looks slim.”

The pause in issuance – with no euro benchmarks hitting screens since Wednesday – and the anticipated slower pace next week, is expected to be positive for the covered bond market.

“It’s a good time to reflect and prepare,” said one. “Accounts have got that first rush out of the way and can now be a bit more selective, and those issuers that haven’t yet got their deals away have new reference points to consider and, potentially, new dynamics to try and predict.

“The slowdown should also help ease any widening pressure on spreads.”

Covered bond spreads have nevertheless been holding firm, in contrast to other European markets where some weakness has set in and spreads have begun to drift wider. Bankers noted that all benchmark covered bonds issued over the last two weeks are either trading at re-offer or have tightened, with the exception of a Eu500m 10 year issue for Bawag PSK – which was deemed to have struggled on Wednesday after it was priced in line with guidance with the book development undisclosed – and Eu750m 10 year for fellow Austrian Erste, which was sold the day before.

“Erste’s deal was well priced and well received, so I think it has probably widened just on the back of contagion from the Bawag deal,” said a banker at one of Erste’s leads. “Deals are performing well everywhere else, which is a good sign.”

Conditions are expected to remain supportive for any issuers that do enter the market next week, but some bankers’ thoughts have turned to the potential for less simple times ahead.

“Now the first rush is out of the way, the supply/demand dynamic might not continue to conquer all,” said a syndicate banker. “We may find ourselves having to talk more about political and economic headlines.”

Bankers said the first round of US bank results today could dictate the direction of wider market sentiment. Beyond that, market participants are expected to have an eye on any headlines regarding upcoming Brexit negotiations and emerging details of Donald Trump’s policies and priorities after his inauguration next Friday.

“But all things considered, the backdrop is stable for now and next week looks like being another good window,” said a syndicate banker. “Almost any transaction will probably be well supported if appropriately priced, and an intermediate, non-Eurozone benchmark is an especially good trade.”

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