A quiet week is expected in the euro covered bond market in the run-up to Easter and the quarter-end, providing an opportunity for the market to regain its composure, bankers said, after a weakening of the primary market. Secondary spreads have remained resilient.

Conditions in the primary market turned over the last two weeks as certain deals underwhelmed, with a WL Bank EUR500m 10 year on 15 March and a EUR500m long six year Pfandbrief for Aareal last Tuesday deemed to have struggled in particular, amid heightened investor selectiveness and apparently smaller than expected orders from the Eurosystem for the two CBPP3-eligible trades.

Bankers said the wider market backdrop was stable today (Monday), but noted that no deals were live in the FIG space and that activity was limited to mandate announcements in the SSA and corporate markets.

“Most recent issues aren’t exactly going to inspire follow-up candidates,” said a syndicate banker. “I think it is not the worst of developments that we are probably heading for a few quiet days.

“This market needs to regain its composure to a certain extent, and for the time being, it is very difficult to find a potential trade that looks attractive.”

The window for issuance will this week be narrowed by the Easter break, with public holidays this Friday and Monday of next week. Syndicate bankers said issuance could also be curbed by the onset of the quarter-end.

“I would’ve guessed that the majority of issuance we’re going to see this week would have come today or tomorrow,” said one.

“My impression is there isn’t going to be much coming, in particular for covered bonds, as they are a product driven to an extent by bank treasury buying. Most bank treasuries will be trying to tidy up the books going into the quarter-end and might leave new issue purchases alone.”

Syndicate bankers and analysts had last week suggested that issuers could be compelled to come to the market this week if they expect covered bond spreads to continue to widen on the back of repeat new issues offering increasingly large premiums.

However, they noted that spreads have generally proved resilient so far, with the iBoxx Euro index having widened just 1bp last week.

“There has been very little performance and some widening in certain names and certain jurisdictions, but we don’t see big moves yet,” said one.

The last euro benchmark covered bond, a EUR1.25bn four-and-a-half year for Bank of Nova Scotia, restored some confidence, having attracted EUR1.7bn of orders while paying a new issue premium of 4bp-5bp.

“It would be difficult to sell any given transaction unless you are willing to take the route BNS took, putting something extra on the table to make sure the deal works,” said a syndicate banker. “Now, investors will expect something along the same lines – i.e. a premium of 6bp-7bp at the start and a final premium of 4bp-5bp.”