Syndicate bankers were this morning recommending issuers either steer clear of immediate issuance or adopt a defensive stance, as the euro covered bond market remained empty against a backdrop of nervous sentiment largely stemming from a rise in US rates and ongoing Italian budget concerns.

“It feels like a collective day off,” said one. “There is absolutely nothing going on and I think tomorrow won’t look a lot different. We have nothing on our side and are not aware of anything cooking, and I doubt we will see a lot in the coming days.

“No one is in a rush and even the opportunistic players don’t have the environment they’d need to get going from one day to the next.”

A rise in rates – with the 10 year US Treasury having breached 3.20% – and continuing concerns over the Italian budget – which saw 10 year BTPs widen as much as 20bp against Bunds this (Monday) morning – have led to volatility and negative sentiment extending into a third week.

“It would have been one thing if we’d just had the Italian story to deal with,” said another syndicate banker, “but all of a sudden we had the 10 year Treasury above 3.10% and then 3.20%. The US is on holiday today, but now it alternates between rates and Italy being in the spotlight.

“It’s difficult to see when it’s going to stop,” he added. “Maybe if people become accustomed to the new rates regime.”

The only euro benchmark covered bond issuance last week was a EUR1.5bn dual tranche, five and 15 year mortgage Pfandbrief for ING-DiBa on Tuesday. The only publicly announced projects in the pipeline are a green Pfandbrief from Berlin Hyp, whose roadshow starts today, and a euro or US dollar social covered bond from Korea Housing Finance Corporation (KHFC), which was roadshowed last week.

“Trades in covered should work,” said another banker, “and some issuers are looking, carefully weighing the pros and cons, whether they should do something now or wait for a more stable window. I’m leaning towards a more cautious stance and wouldn’t push anyone into this market.

“If you adopt a flexible approach, with a more defensive intermediate maturity and understanding that we are not able to move more than 2bp, you could still get a trade done. If you are looking for something a bit more ambitious, in tenor or spread outcome, it makes sense to wait.”

Supply prospects are also diminished by banks going into blackout periods, while most issuers are also understood to have met their funding requirements for the year.