Euro issuance down but not out

In euros more than a week has passed without any new benchmark covered bond supply, and more than two since the last senior unsecured deal, as fears that the end of quantitative easing is nigh contributed to a sell-off across markets.

Vincent Hoarau, head of financial institutions, covered bond and ABS syndicate at Crédit Agricole CIB, said the market had moved too far, too fast, and that a correction was overdue.

“Next week will be a real test for the covered bond market as we expect activity in primary to resume in spite of an increasing level of volatility,” he said. “The pricing paradigm will be adjusted and new issue premiums will rise a bit, I am afraid.”

However, the extent to which the market will reprice remains open, he added.

Covered bond spreads have experienced their most pronounced widening since early in the third quarter of 2012, noted analysts.

However, a syndicate banker said that moves in the secondary market are only a limited indicator and that the situation is balanced. “You see buying and selling,” he said. “No-one is freaking out.”

And with net covered bond supply still strongly negative and issuers in deleveraging mode, investor appetite should ultimately remain steadfast, he said.

Other syndicate bankers were also constructive about the prospects for supply, saying that deals for issuers in certain jurisdictions are still possible.