Halfway through the year, analysts are unsure whether they will have to concede that covered bond issuance may not meet the projections they initially devised, or whether it will exceed their expectations.

“Everything is stuck on the topic of the euro-zone,” says Bernd Volk, head of covered bond research at Deutsche Bank. “The covered bond market will continue on a slower pace even though a resolution is found for Greece, also due to pre-funding and declining funding needs of numerous issuers.”

Deutsche Bank had estimated Eu250bn in euro benchmark issuance for the year, a number that Volk now considers impossible.

“Due to all this rating action and market concern I think the market will be happy if we do another Eu60bn and hit Eu200bn, but I think everyone will probably struggle with market issuance,” he says.

“France will be crucial in reaching Eu200bn,” he adds, “which is the best we can hope for. If they issue a lot, we’ll have a lot more volume.”

France has issued Eu36bn to the start of this week, including taps.

Danske Bank had forecast Eu226bn in gross supply for 2011, and some 62% of that volume has been issued to date. By comparison, Eu185bn hit the market last year.

“There’s still a lot of uncertainty because market access is very much linked to the sovereign debt crisis,” says Christian Riemann-Andersen, senior analyst at Danske. “If they don’t come up with a sustainable solution for Greece, who knows what will happen, but if they do, we might even see more issuance than we have forecast, driven by the peripheral countries.”

Covered bond analysts say that supply in different currencies could affect what should be expected from different jurisdictions.

“The UK is a little bit behind what we had expected,” says Riemann-Andersen, “but we stick to the forecast as most UK banks have large refinancing needs. The joker that could take euro supply lower than projected is of course diversification into US dollars or British pounds.”

The UK has issued Eu10bn year-to-date, according to Danske, when the bank had forecast Eu22bn for this year.

Florian Hillenbrand, senior credit analyst at UniCredit, attributed the UK shortfall to a greater trend towards US dollars.

“There is one respect that weighs heavy on euro issuance,” he says. “That’s the US. What we see right now is in countries where they have to swap their issuance back into their home currency (the UK, Norway, and Denmark), we have seen active US dollar issuance.

“This is something that will potentially drag euro issuers toward the dollar market.”

New Zealand and Australia were considered to be minor players, with market participants undecided as to whether Australian issuers would come to market this year or not.

“For Australia, we have a cautious estimate of Eu2bn, but there also might be nothing if the upcoming law gets delayed” says Riemann-Andersen at Danske Bank.

Other jurisdictions have meanwhile surprised to the upside this year.

“Italy has done pretty well as they benefitted from the relief in the sovereign market earlier this year,” adds Riemann-Andersen.

Italy has issued Eu14.07bn out of a Eu20bn forecast by Danske.

UniCredit’s Hillenbrand foresees heavy issuance in September.

“Last year we had Eu27bn in in September,” he says. “I would be quite surprised to see anything less than this number after we saw record issuance in September through March.”

UniCredit forecasts:

Source: UniCredit