Euro covered bond issuance will be slim to non-existent in the coming weeks, bankers expect, in spite of signs of life elsewhere, with issuers “on the beach”. The market is forecast to reopen in the second half of August, but limited needs could offset incentives to issue.

No euro benchmark covered bonds have been issued since 18 June and financial markets have generally been subdued over the last two weeks, although Daimler International Finance today (Tuesday) showed that life remains, in the corporate market at least, with a three-tranche EUR3bn deal that attracted around EUR7.6bn of demand.

In spite of Daimler’s example and even though technical factors are deemed supportive – given benign headlines and stability in secondary spreads on the back of the lack of issuance – syndicate bankers do not expect any new euro benchmark covered bond issuance in the next few weeks as the summer slowdown sets in.

“The tone is positive but flows are very thin and activity in covered bonds is almost non-existent,” said one. “I don’t expect any substantial activity this week, but that is not to say there will be zero activity.

“What we could potentially see, here or there, is one or two opportunistic taps to adjust new issue sizes, although I do not have any sight of specific plans at the moment.”

Another syndicate banker agreed.

“There are no trades, there are no calls, there are no updates,” he said. “Issuers are even telling us to reduce the flow of indications that we would usually send them on a weekly basis, because they are on the beach anyway.”

Banks’ blackout periods have been cited as another factors stemming supply over the last two weeks, but the European bank reporting season is now well advanced, with issuers from France and the Netherlands to announce their results this week, for example, including the likes of BNP Paribas, Crédit Agricole and ING. However, such issuers are not expected to rush to the market while many market participants on the sellside and the buyside are on holiday and while liquidity remains limited.

However, the EUR10bn of euro benchmark covered bonds, including taps, that were issued in the first three weeks of the month make it the third busiest month of July in the history of the market, behind July 2009 and July 2015.

Year-to-date issuance now stands at EUR97.15bn, prompting many analysts to revise higher their 2018 supply forecasts.

Syndicate bankers expect the euro covered bond market to reopen around mid-August, with some predicting the first deal will come in the week commencing 20 August.

“It will be a slow start, and then I think we will hopefully see supply gradually picking up in late August,” said one. “In covered bonds I do not expect any rush.”

This would resemble issuance patterns last year, when the first euro benchmark following the summer break came on 16 August. Five deals were launched in August 2017, totalling EUR3bn of supply, before issuance picked up in September, with 15 deals contributing EUR10.25bn of supply.

Some bankers said covered bond supply could be higher than average in September – once the market gets going – because many market participants anticipate a weakening in conditions and a widening in spreads when the ECB lowers its monthly QE target from EUR30bn to EUR15bn at the end of September. Such concerns are said to have motivated many of the issuers that contributed to the pre-summer issuance push.

However, others syndicate bankers are more sceptical.

“I don’t expect much in covereds in September, to be frank,” said one. “I think most issuers will focus on higher beta instruments and filling loss-absorbing gaps.

“The issuers that are fearing spread widening in covered bonds have probably already done their deals, and those who don’t have those concerns in mind will likely not issue just before September, but wait for a later stage.”