The near term prospects for benchmark covered bond issuance were today (Monday) hit by sharp falls in equity markets amid heightened concerns about the impact of Covid-19, with a Luminor roadshow the only live activity in a week already set to be subdued by Karneval.

An increase in the number of coronavirus cases reported in different countries finally provoked a strong market reaction to the outbreak, with key European equity indices down over 4%.

“It’s a day when for the first time people realised the potential impact of the Covid topic on financial markets,” said a syndicate banker.

Bankers said they had not been expecting any specific covered bond projects to be launched today, with Carnival celebrations in Germany running until tomorrow (Tuesday) already set to subdue activity in the asset class.

However, they reported that mandates in other instruments were put on hold, with the only significant financial institutions issuance a $1bn (€922m) ING Group Additional Tier 1 that was postponed from Wednesday and today encountered less demand to price wide of where it had been expected last week. An announcement by Spain that it would tap the market with a 2050 Bonos tomorrow (Tuesday) was described as “very brave”, even with government bonds potentially benefiting from a safe haven bid.

“The pipeline wasn’t exactly large, but people will be closely monitoring developments to see what is possible,” said the syndicate banker.

“Covered bonds have long proven themselves to be very resilient, so secondaries have not reacted much – most of the concern is reflected in the market indices and Bunds.”

A syndicate banker who had been on a “no-go” call this morning said that, although he did not have any covered bond mandates in hand, euro benchmark issuance could emerge later in the week if conditions settle down.

“It’s really red, red today, but hopefully things will rebound a bit tomorrow,” he said. “But then we will all need a bit of stability – it’s not worth trying to push an issuer into the market only for them to have to overpay or pull their deal.”

Another syndicate banker echoed this.

“As we have all seen in the past, covered bonds are a rod of stability,” he said, “but you don’t want to be in the market bookbuilding when you have a volatile day.

“We need to see what the US does and what happens overnight.”

As reported on Thursday, Luminor Bank last week began roadshowing what is set to be the first covered bond in the Baltics and is continuing its marketing exercise this week.