Euro benchmark covered bond issuance could restart this week, according to some bankers, despite the only two trades last week having being hit by rates uncertainty and unflattering RV considerations, but issuers are likely to find the balance of power has swung back in investors’ favour.

The asset class suffered its biggest reversal of the year on Tuesday, as a €500m no-grow 20 year deal for Raiffeisen-Landesbank Steiermark was priced flat to guidance after no book updates were provided. A United Overseas Bank (UOB) €750m eight year issue fared better, but its pricing and subscription levels were short of the consistently strong results achieved in recent months.

Syndicate bankers at and away from the leads said that such an eventuality was inevitable at some stage, given that covered bond pricing was increasingly anomalous relative to the SSA market, but most were still caught off guard when it occurred.

“The entire community of issuers and dealers was surprised,” said a syndicate banker at one of RLB Steiermark’s leads. “We all thought we could just continue what we had been doing.”

Indeed, a syndicate banker away from last week’s trades noted that all euro rates products had experienced a “wobble”, with a €14.137bn two-tranche European Union SURE trade the catalyst.

“The gorilla was the EU deal,” he added, “although going head to head with it probably wasn’t the smartest move.”

Volatile moves in rates have forced investors to reconsider their overall approach to asset allocation, according to the syndicate banker, with the back-up in yields in government bonds having a knock-on effect on other asset classes.

Markus Herrmann, senior investment analyst at LBBW, on Friday highlighted how covered bond spreads had thus far remained stable, while SSA spreads had been increasingly affected by sovereign widening.

Spread changes for covered bonds, sovereigns, SSAs

Note: SUP = supranationals, REG = EU regional authorities, AGC = EU Agencies, SOV = EU sovereigns; Source: LBBW, Refinitiv

Although the uncertainty across fixed income markets meant some issuance plans were postponed last week, syndicate bankers have not ruled out new supply emerging this week, and one said he expects the coming days to be busy, including on the covered bond front.

“This will very likely drive the market further in terms of repricing,” he added.

Core 10 year issuance, for example, will have to be priced some 3bp wider, he forecast, with primary market pricing driving secondary spreads.

Another banker said issuers will also have to focus more on what suits investors, paying higher new issue premiums, moving fewer basis points during execution, and not being able to pick and choose their optimal maturities.

“But I can’t really believe that paying 1bp-3bp more or going a couple of years shorter are going to put issuers off,” he said.

“There’s also still been a very limited amount of supply so far, and there’s no real reason to think that’s going to change dramatically.”