The euro covered bond market is expected to get off to a slow start in November as holidays curtail opportunities to capitalise on last week’s “neutral” ECB QE decision, but after a month of big books and small premiums, spreads are seen remaining at current tights through to the end of 2017.

The window for euro covered bond issuance this week is narrowed by a public holiday in Germany today (Tuesday), marking the 500th anniversary of the onset of the Reformation, and further holidays in certain German states tomorrow.

“These holidays have curtailed what would otherwise have been a good opportunity for issuers to tap the market,” said a syndicate banker. “Last week’s ECB announcement was pretty neutral for covered bonds – spreads have stayed where they were and the primary market picture remains the same.”

Many European banks also remain in blackout periods, limiting the potential for issuance when German market participants are back at the office, and bankers also cited rates decisions from the Federal Reserve and the Bank of England, due tomorrow and on Thursday, respectively, as having the potential to persuade issuers to hold fire.

“It’s already a pretty short window for anyone to work with, and given the blackouts I expect many people to write off this week,” said one.

Deutsche Hypothekenbank is the only issuer with a publicly announced euro benchmark in the pipeline, an inaugural green Pfandbrief that may follow a roadshow starting next Monday and ending the following Monday (13 November).

Sparkasse Hannover and Wüstenrot Bausparkasse will also go on the road on Wednesday and Thursday of next week, respectively, ahead of expected sub-benchmark issues.

Sparkasse Hannover announced its roadshow yesterday (Monday) ahead of what will be its first publicly issued mortgage-backed deal. The German savings bank’s last public sub-benchmark offering was a Eu250m 10 year public sector Pfandbrief in November 2014.

Euro benchmark covered bond supply totalled Eu8.75bn this month, including taps and two Eu500m issues for National Bank of Greece and Eurobank Ergasias that, although benchmark-sized, do not feature on benchmark indices due to their sub-investment grade ratings.

This is down from Eu10.25bn in September, and Eu9.5bn in October 2016.

Bankers noted that almost all this month’s benchmark issues from core and semi-core countries were priced with no new issue premium, but, thanks to a demand/supply imbalance, had nevertheless been well-received and were all trading inside re-offer today.

“The market conditions have been so favourable that there was little question that even the riskier trades – the Greeks and Montepio’s inaugural conditional pass-through issue earlier in the month – might not work,” said a syndicate banker.

Market conditions are expected to stay balanced in issuers’ favour next month, and spreads are forecast to move sideways through to the end of the year, after the ECB’s announcement of a “recalibration” of its QE buying on Thursday was deemed to herald little change for CBPP3.

“It will be a slow start to the month, but once the window is open again, people will find the market in the same condition they left it,” said a syndicate banker. “There’s probably another six weeks of primary market activity, give or take, and conditions look good for any banks that feel like pre-funding for next year.”

Picture: Martin Luther’s 95 Theses by Ferdinand Pauwels (detail)