Euro covered bond issuance may not resume in full force until late August, bankers expect, with the majority of issuers yet to report, many already well-funded, and the market feeling the effects of the summer slowdown – even if opportunities are being taken advantage of elsewhere.

Just Eu2.25bn of euro benchmark covered bonds have been issued so far this month across three deals – a Eu500m 10 year for Crédit Agricole, a Eu1.25bn tap of a January 2037 ABN Amro issue and, most recently, a Eu500m three year for HSH Nordbank almost two weeks ago, on 11 July.

This compares with Eu4.85bn of benchmark supply in July 2016, all of which was issued between 4 and 20 July. The market then remained closed for three weeks, until Commerzbank launched a Eu250m tap on 12 August, and the next new euro benchmark did not emerge until 22 August.

Bankers said the euro market could be in the midst of a similarly fallow period, given that many banks remain in blackout. Last week most banks from countries including Germany, France, Italy and the UK entered silent periods, and this week they will be joined by banks in the Netherlands.

“About 75% of frequent borrowers in FIG will release their Q2 financial figures in the next 10 days,” said a syndicate banker. “Due to blackouts, and issuers not having substantial funding needs, I do not expect anything substantial this week or next.”

Many Nordic issuers have already reported results and, as such, are among the likeliest of candidates to reopen the euro covered bond market. However, given that many Nordic market participants remain on holiday and that many banks are well-funded, bankers were downbeat on the possibility of benchmark supply this week.

“As usual, the Nordics may be first to shoot,” said one. “But I am not convinced about their immediate need for funding.

“In covereds there may be some opportunities right now because spreads are extremely tight, so there may be one or two surprising opportunistic trades, but I don’t see anything in the visible pipeline. I am relatively bearish regarding issuance in the next two weeks.”

Another banker agreed, even if other markets remain active – with Greece, most notably, having announced plans to issue a euro benchmark five year bond tomorrow in its first international issue in three years.

“Some investors are still around, but my impression is that the majority of covered bond issuers are well advanced on their 2017 funding plans,” he said. “I would not rule out there being one or one and a half benchmarks per week, but it would not surprise me if the market does not properly restart until the ECBC event in Barcelona in September.

“Even the end of the blackout periods may not be enough, now we are feeling the summer lull.”

As had been expected, the European Central Bank announced no changes to its rates or QE programme after a governing council meeting on Thursday, with more dovish comments from president Mario Draghi balanced against a relatively hawkish tone in an earlier speech in Sintra on 27 June. The speech prompted moderate moves in Bund yields, with the 10 year Bund fluctuating between 56bp and 52bp on Thursday before continuing to tighten through Friday, to remain at around 50bp today.

“Draghi’s comments did cause some movement, but in terms of relative value for covered bonds, it does not really change the overall picture,” said a syndicate banker. “I don’t think this would be enough to bring any players back to the market.”

Photo: European Parliament/Marco Zepptella; Copyright: European Union 2017