A new euro benchmark could hit the market as early as tomorrow (Wednesday), with covered bonds showing their mettle in the face of the new omicron Covid variant and the market remaining open into December after a strong end to the November primary market last week.

Euro benchmark covered bond issuance was €5.75bn in November, the same amount as in November 2020, with more than half of it, €3.5bn, coming last week despite expectations of a slowdown into year-end. Societe Generale SFH attracted €4.25bn of demand to a €1.5bn five year green issue, while Rabobank and Crédit Agricole Public Sector SCF took €1.5bn and €500m, respectively, from the market in 10 year trades.

Following this supply, year-to-date issuance, at €92.15bn, is now within reach of 2020’s total volume of €93.45bn, and at least one more deal is now expected in December.

A syndicate banker said the European issuer is planning to hit the market in the coming days, possibly as early as tomorrow, despite the omicron variant casting a pall of uncertainty across financial markets.

“Secondaries are still well-anchored,” said the syndicate banker, “and there’s still some good performance in recent trades, so I don’t think it’s a big gamble. There are many things I wouldn’t do in the market right now, but I don’t see any issue with covered bonds.

“It’s a trade that may have been scheduled for next year,” he added, “and they are just pushing it forward to use the relatively quiet market now.”

Rabobank analysts noted that last week’s transactions were all tighter even after Friday’s volatility.

“While secondary spreads have remained stable to tight throughout the vast majority of this year, a little pressure was brought to bear last week as fears gripped markets that yet another Covid curveball was in play,” they said. “Ultimately the market has kept its nerve.”

However, Joost Beaumont, senior fixed income strategist at ABN Amro, cautioned that covered bonds may not remain immune, noting that peripheral spreads widened more than 1bp last week.

“Overall, the picture confirms the view that higher beta covered bonds tend to be most vulnerable during periods of severe market volatility,” he said. “As a result, we reiterate our view that we have become more cautious on these names, also as we expect volatility to continue to linger on the back of the Fed tightening monetary policy faster than expected.”

A syndicate banker suggested that covered bonds could prove stable whether or not omicron has a major impact.

“If the new variant becomes more difficult to handle and the health situation becomes worse, then the central banks will simply step up again and make sure there are no problems, and that’s almost a slight positive for fixed income,” he said. “And if it’s not important for the economy, and doesn’t lead to more lockdowns and difficulties, then covered bonds are still in a very good position.

“So I don’t think covered bonds will be affected much either way in the next few months.”