A new rise in yields on the back of the US election result is seen as presenting an opportunity for core issuers to re-enter the short end and relief for investors weary of duration, and covered issuance is expected to pick-up next week with at least two deals due, after insurer Sampo tested the FIG waters yesterday (Thursday).

Rates and yields have backed up substantially since Donald Trump’s victory surprised the markets, with the 10 year Bund yield up from 0.18% on Tuesday to 0.30% today (Friday), its highest level since spring.

Bankers said the move had reopened the shorter end of the curve to covered bond issuers, which had been out of favour while yields were at historic lows and negative in much of the yield curve earlier in the year. They highlighted that five year euro swaps are now at 13bp, on the back of the rates biggest rise since August 2016, and that four year swaps are now positive for the first time this year, at 3bp.

“Although we’ve seen that negative yielding, zero coupon deals are possible, most issuers have preferred to go long,” said a banker. “It has meant that options have been quite limited.”

Since the euro covered bond market reopened in August, following a summer lull, Eu20.75bn of new euro benchmark supply has been sold, of which Eu13.25bn has been in maturities of 10 years or longer. The shortest-dated benchmark over the same period was a Eu500m short six year (June 2022) issue for PKO Bank Hipoteczny, and only one of the 10 benchmarks to have a maturity of less than 10 years was from a core issuer – a Eu500m long eight year (December 2024) Pfandbrief for DG Hyp on 25 October.

Bankers said issuers from jurisdictions such as the Nordics, Canada and Australia could feasibly price positive yielding five year benchmarks at current levels, and said core issuers could comfortable access the seven year segment without risking a negative yield.

“Right now, a core seven year euro covered bond is a super trade,” said a syndicate banker. “Of course, not all investors are natural buyers of the 10 year stuff that’s really dominated supply recently, and I’m sure they’d appreciate the opportunity to shorten duration.

“Furthermore, I think five years are now also viable for the first time in a long time, at least to issuers that can offer a good yield.”

Bankers added that, on top of this, the volatility in rates will also make investors more cautious of the long end.

Although no benchmark covered bond supply has emerged since the election result, euro financials were reopened by Sampo yesterday (Thursday). The Finnish issuer printed a Eu750m seven year senior unsecured bond on the back of books over Eu1.25bn.

Bankers said Sampo’s deal, which was not deemed to have paid a substantially higher premium than deals before the election, showed that issuance conditions were unaffected. They also noted that covered bond spreads were unmoved by Donald Trump’s unexpected win, which they said boded well for further supply.

Caja Rural de Navarra and Nordea Mortgage Bank are today concluding European roadshows ahead of potential deals, which are expected to be launched next week. Caja Rural de Navarra’s deal, an inaugural sustainable issue, will have an intermediate maturity, and Nordea’s euro benchmark debut an intermediate to long maturity.

ANZ will also complete a series of investor meetings today, after which it is expected to issue a euro covered bond and/or senior unsecured bond.

Other issuers are also considering deals, bankers said, noting that many have recently exited or are now exiting blackout periods.

“Looking ahead to December, there a lot of data points and potential banana skins to navigate,” said a syndicate banker. “I see the second half of November as the best window we have left this year, so now’s the time to go.”

However, some bankers were less enthusiastic.

“I have a feeling that a few more banks are looking at the market, but aren’t majorly convinced,” said one syndicate. “No one is desperate for liquidity after the first half of the year, and I think the next couple of weeks will be quieter than some people seem to expect.”