Syndicate bankers suspect that a barren spell in euro benchmark issuance could continue for a second week, with blackout periods, central bank alternatives and elevated spreads conspiring to stymie supply.

Last week was the first void of euro benchmarks since the week of 24 February when financial markets began capitulating in the face of the Covid-19 outbreak.

Syndicate bankers told The CBR they were unaware of any mandates likely to end the hiatus.

“It’s very quiet and there’s no activity whatsoever,” said one. “For most, it’s all far too expensive, so they’re continuing to shelve their transactions with the ECB, keep their gunpowder dry, and hope for sunnier days.”

DZ Bank analyst Jörg Homey agreed issuers are apparently biding their time.

“Because of the attractive refinancing possibilities at the central banks, above all the European Central Bank (ECB) with its three year long term tenders, it is difficult for the banks’ treasury departments to justify raising money via the capital market at much higher costs,” he said.

“In addition, large volumes of new covered bonds that have not been placed into the market with investors indicate that banks would like to take advantage of the favourable central bank refinancing facilities.”

Blackout periods are also sidelining most issuers, noted another syndicate banker, who suggested issuance could pick up early next week ahead of 1 May public holidays, but that supply would remain intermittent.

“If there’s an issuer that’s not in black-out this week,” he said, “and they are content with conditions and presented with a very good window, they might emerge and act on quick notice.

“Swap spreads have remained stable for credit overall,” he added, “which is what we want to see – especially for the triple-A products – plus we have oversubscribed books, so people are comfortable with trades getting done.”

Although year-to-date supply is not significantly lagging last year’s pace, issuers are being patient, according to the syndicate banker.

“Investors are right to be cautious and there’s no panic from issuers,” he said. “Right now, there’s no harm in waiting, and on the back of ongoing circumstances, the bulk of supply ahead of the May holiday will likely be towards the start of next week.

“There’s also an ongoing repricing of secondaries for covered bonds that have not yet emerged and we’re probably slightly lagging behind the curve there.”

Another syndicate banker was less confident about when the next euro benchmarks will be launched, echoing the sentiment that spread levels are still too expensive for the majority of core issuers.

“You can clearly derive the levels you would have to pay for, let’s say, a German Pfandbrief,” he said. “It would be something like 25bp or high 20s for a five year print – that’s too much – so maybe it’s worth these issuers waiting another month or however long it takes to settle.”

He added that the primary and secondary market remain very much decoupled, with little liquidity in the secondary market, but that traders are not being forced to widen spreads further as supply is expected to be low.

“The gap is getting closer,” he said, “but it’s still there, and it’s still significant.”