Syndicate bankers today (Wednesday) pushed back their estimates of when euro benchmark covered bond supply might restart, after hopes raised by successful SSA trades yesterday were dashed by renewed volatility and weakness, as the trade war of words escalated further.

On the back of a degree of stability and positivity in markets yesterday (Tuesday) morning, the European Union successfully entered the market to price a €8bn dual-tranche tap, paying only a slightly higher new issue premium than usual and securing some €86bn of demand, while a Lower Saxony €500m no-grow 10 year bond was 3.8 times subscribed.

Although a €250m January 2032 Hamburg tap attracted €580m of orders this morning, a second round of US-China tariff increases and accompanying rhetoric hit financial markets, leading to the week being declared all but over for any potential primary market activity in covered bonds.

“Yesterday, there was a very short window when markets recovered a little and everybody was hoping that the storm was passing,” said a syndicate banker, “but it was probably only the eye of the storm, and we are now back to where we were 36 hours ago.

“We are running out of ideas. To be perfectly honest, I don’t think that things will recover enough to show opportunities this week. And then we need to see if this tit-for-tat continues – it’s not going in the right direction and I don’t foresee any solution in the near term.”

A spike in US Treasury yields today was just the latest twist for market participants to contend with.

“It’s looking quite bleak,” said another syndicate banker. “We have a project and are monitoring the market and we’re hearing of others, so there is a pipeline out there. And you don’t necessarily need, say, three days in a row with everything green and positive, because if you come with a strong name, don’t do anything silly with tenors, and don’t try to be cute with IPTs, then on a day like yesterday it doesn’t take much for people to engage with the right stuff – and we are optimistic these days will come.

“The problem is that we have disaster Monday, a slight rebound yesterday that now looks a bit like a dead cat bounce, and then what we have going on today. If that’s the pattern, people may just say, stuff it, and then look again after the Easter break.”

With covered bond spreads having remained comparatively stable in the context of the uncertain backdrop, execution rather than price is the issue, he added.

“The covered market has repriced a little, but we’re still looking at a general spread environment that is quite tight on a historic basis, so it’s not the end of the world for issuers if they have to pay 3bp more for the next trade – it’s a shame, but in the grand scheme of things, so be it, and for the big funders doing three or four deals a year it’s about average funding cost, anyway.

“Right now, the question is, can we hit a day where people will buy? The violent intra-day moves are killing the mood, because you can open the book in the morning, the Bund does a somersault, and then you end up with a completely different proposition.”

Covered bond syndicate bankers nevertheless drew solace from the asset class’s safe haven status as well as its relative performance amid the turmoil.

“I feel safe about covereds as a product that will come back to life,” said one, “maybe not this week, but most likely next – if things don’t get massively worse than where we are now. For the other asset classes, we need to see where things end up, but senior preferred have been widening, non-preferred widening more, Tier 2s difficult, and the weaker the credit, the uglier it looks.

“So the funding universe for financial institutions has changed quite significantly compared to where it was three weeks ago, where it was all in a happy place – it was easy to sell Tier 2, it was even easier to sell AT1.”

However, banks are generally seen to be in a comfortable position after having frontloaded funding and particularly issuance lower down in the capital stack. The volatility also comes as most banks are going into blackouts, which could already have limited supply in the current weeks.

“Let’s wait and see how things develop,” said a syndicate banker. “There’s no urgent need to be the first mover, neither is there any real first mover advantage here.”