Despite an encouraging start to July, euro benchmark covered bond supply came in at just €3.75bn last month, as the market embarked on an early summer holiday, and market participants expect a prolonged break, with no restart expected before the week commencing 23 August.

The last euro benchmark covered bonds issued before the summer recess – DZ Hyp €750m and Crédit Mutuel €1bn trades – hit the market almost four weeks ago, on 8 July.

This is the same date as the last pre-summer supply last year, but Ted Packmohr, head of financials and covered bond research at Commerzbank, noted that in pre-corona times the market more typically shut down for holidays in the second half of July.

However, he said the unusually early start to the summer break is not expected to be compensated for by an early restart to supply.

“Already last year this hope did not work out,” noted Packmohr, “the summer break dragged on for about seven weeks instead. It was not until 25 August that the primary market reopened with its first new benchmark.

“We have no reason to expect a much earlier restart this year; before the week of 23 August the chances are likely to be rather poor, in our view.”

Covered bond syndicate bankers agreed.

“It’s truly a pronounced summer break,” said one. “I would expect this to last for another two weeks, probably even one week longer given the overall volume, which is very reduced, anyhow, this year.

“We have to remain patient for the foreseeable future.”

Another syndicate banker noted that in the becalmed market covered bond spreads have been “quite constructive”, edging tighter as the SSA market has performed.

“You gain nothing by being the first one out there,” he added, “so I don’t think we’re going to see an avalanche of trades in late August and September.”

Euro benchmark supply in July came in at €3.75bn, or €4bn including sub-benchmarks. Timothy Rahill, credit strategist at ING, noted that this was up from just €1bn in July 2020. However, the benchmark supply was all in the first eight days of the month and down from €9bn, including sub-benchmarks, in June, reflecting the onset of the summer lull. Bank supply in general was very quiet last month, Rahill added, coming in at €4.4bn, excluding covered bonds, versus a €15bn July average in recent years.

According to LBBW analysts, July’s supply brought euro benchmark issuance to €51.05bn in the first seven months, down 24% from the previous year’s €67.25bn.