Macro themes will largely determine the level of euro benchmark supply in the second half of the year, with other variables such as basis swaps and senior unsecured opportunities also at play, said market participants. Volumes are down but an easing of the sovereign debt crisis could provide scope for a supply boost from the periphery.

Some Eu70bn of Eu500m plus euro benchmarks were sold in the first half of the year, including taps, roughly half of the Eu140bn that was placed in the same period in 2011, according to The Covered Bond Report’s database.

Bernd Volk, head of covered bond research at Deutsche Bank, said that euro benchmark supply has been low so far this year because core issuers’ funding needs are limited and peripheral issuers do not have market access or only at high levels that they are not willing to pay.

“Coming up with a supply forecast is like rolling the dice given how much the covered bond market is dominated by macro themes,” he said.

These play out in many ways, he said, including by triggering deposit flows that have an impact on wholesale funding needs.

Jörg Homey, head of covered bond research at DZ Bank, said that the sovereign debt crisis and the three year ECB tenders contributed to low supply volumes in the first half of the year, and that if the rest of 2012 continues as it has unfolded so far, a maximum of some Eu120bn of euro issuance could be expected.

“It’s very difficult to come up with a precise figure,” he added, “as the outlook depends very much on the sovereign situation.”

Sabine Winkler, covered bond analyst at Credit Suisse, is bearish on the covered bond market, citing policymakers’ failure to restore financial stability among reasons for maintaining such a stance.

“Credit ratings of sovereigns, lenders and covered bonds remain under pressure, and covered bonds from jurisdictions regarded as ‘safe havens’, such as Germany, the UK and Nordic countries, still benefit from high capital inflows driving yields below fundamentally justified levels,” she said. “Uncertainties around the restructuring of activities of some lenders, additional credit rating downgrades of sovereigns, lenders and covered bonds, and the introduction of resolution regimes are likely to put upward pressure on covered bond asset swap spreads.”

Cristina Costa, Natixis

Cristina Costa, senior covered bond analyst at Natixis, said that much depends on the outcome of a Eurogroup meeting on Monday, including clarification of details about a loan of up to Eu100bn for Spain’s banks.

“That will have a big impact on market sentiment.” she said “I don’t expect cédulas issuance any time soon, but there might be a window.

“At the same time even if peripheral issuers could come to market it’s not clear how much international demand there would be because of the covered bond ratings.”

Italy’s Intesa Sanpaolo this week sold the first peripheral bank bond since February, a Eu1bn three year senior unsecured issue that was priced at 410bp over mid-swaps, but this does not mean Italian or other peripheral covered bonds are around the corner, according to market participants.

“The read across for secured issuance by a southern European champion is not at all obvious,” said Richard Kemmish, head of covered bond origination at Credit Suisse. “How much govvies will rally and how much the peripheral issuers are willing to pay are massive swing factors in any supply forecast.

“There could be zero or every issuer could do several deals.”

Intesa’s deal was one of seven that hit the senior unsecured market in an issuance frenzy this week, with DZ Bank’s Homey saying this shows that issuers may keep their powder dry and focus on this market rather than covered bonds if there is a strong enough window.

“They may want to preserve collateral for particularly difficult times,” he said.

Costa at Natixis said that most issuers have carried out their wholesale funding programmes or are close to doing so and that they will “use windows wisely” and not come to market at any price.

Kemmish at Credit Suisse also cited the basis swap between euros and home currencies as an important factor for the likes of UK and Swedish issuers, with the dollar-euro basis another variable at play.