Primary market activity is set to remain on pause as the world awaits the imminent US election and its aftermath, according to syndicate bankers, with a second Covid-19 wave and countermeasures such as further expected ECB stimulus also affecting dynamics.

No new benchmark covered bonds were launched or mandated today (Monday), with the last having been a successful €500m 20 year for MünchenerHyp last Tuesday, which was the only euro benchmark last week.

A syndicate banker said the most immediate source of uncertainty is the US election tomorrow (Tuesday) and the length of any subsequent delay in results being confirmed, although the increasing prevalence of lockdown measures across Europe contributed to one of the weakest weeks for equities since March last week.

“I’m not saying you can’t do anything tomorrow,” he said, “but I don’t see why anyone would take any risks.

“The market rebounded a tad today,” he added. “Credit was underperforming a little given equities are higher, but we’ve come quite tight in the past few months, so it’s not a bad thing in that sense.”

A relief rally could follow any confirmation of a victory for democratic presidential candidate Joe Biden, he suggested, paving the way for a potential pick-up in supply later this week or early next, with more banks also emerging from blackout periods.

The outlook for covered bond supply nevertheless remains dim.

“They do seem to be trickling in,” said the syndicate banker, “albeit we’re still down massively compared to previous years. Let’s just say I can’t see anyone jumping in, in order to pre-fund for January.”

Escalating lockdown measures across Europe in response to rising coronavirus transmission rates will impact the broader market backdrop for the foreseeable future, according to another syndicate banker.

“Quite frankly it’s here to stay,” he said, “and it’s still a risk until a more permanent solution gets released.”

The impact of a second wave is widely seen to have contributed to a European Central Bank statement on Thursday in which it strongly indicated that it will step up its stimulus package at the December meeting of its governing council. The ECB left interest rates unchanged, but said it “will recalibrate its instruments, as appropriate, to respond to the unfolding situation and to ensure that financing conditions remain favourable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path”.

While welcome, the central bank’s stance did not come as a surprise, said bankers.

“This is something we all know now after years of being in this situation,” said one. “It’s clear they’ll step in if thing escalate – and not just them, but every central bank.”

Joost Beaumont, senior fixed income strategist, ABN Amro, said he expects QE to be increased, among other measures, including the further easing of TLTRO conditions, such as volumes and lending rates.

“If true,” he said, “the measures are likely to support covered bond spreads, as the Eurosystem’s demand for covered bonds will probably increase, while cheap central bank funding could further weigh on covered issuance. Consequently, strong technical factors will remain at play next year.”

Euro benchmark supply totalled €7.6bn in October. This is some €2bn less than October 2019, and, given €20bn of redemptions, net supply was firmly negative.

“Looking forward,” said Beaumont, “new supply of covered bonds has been roughly €10bn in November on average during the past three years, but it would be a positive achievement if we reach this number this year as well.”