Kookmin Bank is expected to launch its first covered bond in euros and in sustainable format on Wednesday at the earliest, but no other issuers are set to tap the market, according to syndicate bankers, as the summer slowdown approaches after the weakest first half supply since since 2015.

The South Korean issuer is expected to launch a five year issue after having announced the mandate last Tuesday – with BNP Paribas, Citi, Crédit Agricole, JP Morgan, HSBC and SG as leads – and conducted a series of investor calls from Wednesday to Friday.

A syndicate banker at one of the leads said a €500m no-grow five year Korea Housing Finance Corporation (KHFC) social covered bond priced last Monday on the back of some €650m of orders is trading flat to its re-offer level of 35bp over mid-swaps. He noted that although KHFC is the relevant comparable, the government agency’s issuance is not under the general Korean covered bond law, whereas Kookmin’s is.

He said that if the positive market sentiment seen today (Monday) persists until Kookmin’s launch, it will be priced with a positive yield – unlike KHFC’s – with rates have backed up in the interim.

“If you go to a negative yield,” he added, “you will certainly have less appetite from asset managers, which was the case with KHFC somewhat.”

The Korean deal could be the last new euro benchmark launched prior to the summer holiday season, said the banker, as no other issuers appear to be eyeing the market.

“You might see a tap here and there,” he said, “but I think strategically, this will be the last one pre-summer.”

Another syndicate banker, however, said more issuers could tap the primary market before the holidays, but that there will not be a deluge of activity.

“The Nordics, for instance, have not issued much this year,” he said, “and they certainly have their drive-by outings. But I don’t think anyone is pressured to come to the market.”

This is despite covered bond supply running significantly behind 2019’s levels, he noted.

“We’re at a place where core covered bonds, particularly from Germany, are flattening out versus underlying SSAs and valuations are becoming increasingly rich,” he added. “So for the time being, as we see a more constructive tone across risk assets in general, perhaps more investors will be more inclined to look at capital instruments.”

In the first half of 2020 euro benchmark covered bond issuance totalled €68bn, including taps, which is significantly less than what was issued in the first half of 2019, making it the weakest first half year since 2015 and some €30bn down on the first half of 2019.

Karsten Rühlmann, senior investment analyst, LBBW, said coronavirus had invariably “cast a long shadow” over the market in the first sixth months of the year, highlighting that the market was all but closed to the majority of issuers in April when global lockdowns reached their apex. He said this was reflected in activity dropping from 111 bonds issued by 88 institutions in 20 jurisdictions in the first half of 2019, to 75 bonds from 53 issuers in 15 jurisdictions so far this year.

“We no longer believe it is realistic to expect issuance to reach our original forecast of €135bn for all of 2020,” he added. “We have therefore lowered our estimates by €25bn to €110bn.”