Syndicate bankers expect this week to be a washout for euro covered bond issuance after the collapse of Silicon Valley Bank (SVB) in the US, despite some signs of stability today (Tuesday), as market participants potentially await the outcomes of ECB and Fed meetings before reengaging.

Since a €750m Caffil trade hit the market on Thursday towards the end of a near €10bn week, the euro primary market has been bereft of supply, with other sectors including local Nordic markets also quiet.

“The moves on Monday and Friday were so erratic in all markets that everything has been affected,” said a syndicate banker. “It’s not that anyone perceives that a covered bond issuer in the European space has anything remotely like the balance sheet of SVB, but everyone is in wait-and-see mode.”

Another banker said he is working on the assumption that this will be a “zero week”, despite markets regaining their poise somewhat today – with the 10 year Bund yield having made up most of the ground it lost yesterday (Monday), for example – and tomorrow (Wednesday) offering a slim window of opportunity before the outcome of the European Central Bank’s latest governing council meeting on Thursday.

“If there is a blue chip name with something up their sleeve, I suppose they could be quickly out of the blocks tomorrow,” he said, “but I’m not aware of anyone with such plans. And those who would need one-and-a-half days would probably not pre-announce because of the uncertainty.”

The first syndicate banker said he also expects next week to prove more viable.

“Secondaries have been holding up quite well, so in that respect, the market is in OK shape,” he said, “but I don’t think anything would fare well right now because investors are busy putting out fires elsewhere.

“If a covered bond issuer with a strong following in the market were to approach the market in the coming week and accepts the need to sweeten the deal just a little bit – paying a couple of basis points more NIP and with secondaries having cheapened up a bit – then that could work,” he added. “And many issuers will just shrug their shoulders and say, well, if that’s what it takes…”

Market participants are meanwhile expected to take the time to consider the rates outlook in the wake of the Federal Reserve’s reaction to the collapse of SVB, also digesting US CPI figures out today. Expectations for terminal rates have fallen sharply, while a cut rather than hike from the Fed next Wednesday is even deemed possible, and the ECB’s likely moves this Thursday are now less clear.

“Is the Fed still on a quest to fight inflation,” said one banker, “or will US financial stability be more of a consideration?”

The strong reaction to SVB’s collapse, even after US authorities moved to reassure markets, nevertheless means sentiment is likely to remain fragile, with any further nasty surprises able to quickly disrupt activity, said bankers.

“What SVB clearly demonstrates is that there remains a significant vein of anxiety about bank failures,” said one. “And when one falls off a cliff, it’s only right that investors are concerned.”

Those issuers who hit the market last week – including Canada’s TD with the biggest post-global financial crisis benchmark and names such as Austria’s RBI and Iceland’s Landsbankinn – can feel particularly happy about their timing, noted another. Re-offered at mid-swaps plus 34bp, RBI’s €500m three year from last Tuesday (7 March), for example, was today seen at 28bp, mid.