Equity markets rebounded today (Monday) after last week’s steep falls, but syndicate bankers reined in any hopes that this could lead to a quick resumption of new issue activity and cautioned prudence in the timing and pricing of any attempts to reopen the market.

A covered bond banker said that after a stronger market open in European and Asian markets today, yields soon dropped several basis points across the curve.

“I wouldn’t call it a stable market environment,” he said. “We saw something similar last week on Wednesday, when the markets opened on a stronger footing but then dropped and dropped and dropped again.

“Issuers need more than just a stable opening,” he added, “probably at least two to three days of real stability before we can move ahead.”

He said that when primary market issuance re-emerges issuers will have to offer higher new issue premiums in order to engage investors.

“We’ve seen this already in the SSA space,” he said, “most recently with names such as ESM and Thuringia paying some 3bp-4bp of new issue premium to finally get their deals done. Right now it’s prudent to act more cautiously than we did in the past.”

However, the banker said that from a fair value perspective, many secondary covered bonds look attractive versus Bunds and OATs, with swap spreads having widened.

“They’re really juicy against their benchmarks references,” he said. “But I don’t know if this would be the case for a whole new benchmark, as you probably still have to pay up a bit.”

“For issuers, it’s more about day-to-day monitoring of the situation and getting a real gut feeling of what investors need right now,” he said.

Another syndicate banker said that despite the firmer start this morning, conditions remained generally very volatile.

“We saw a reversal with the DAX below the 12,000 mark again and Bunds were trading up,” he said. “Ideally, such a scenario could be a turning point, but it feels a bit early to call it a revision.”

He added that speculation of coordination of monetary easing by central banks in anticipation of the coronavirus turning pandemic was a potentially encouraging development.

“Nothing is confirmed yet,” he added, “so I would still approach this week with caution, as we need to see some real action to turn overall sentiment.

“Accounts need more than words.”

Frank Will, global head of covered bond research, HSBC, said that how long the primary market for covered bonds remains closed largely depends on broader sentiment, but noted that in the past, covered bonds have been among the first new issues in the market after a shutdown.

“We expect that strong issuers out of the core countries will enter the market as soon as the overall market sentiment improves again,” he added.