Bankers are optimistic that covered bond supply will continue to be well-received next week, as euro benchmark issuance picked up to reach Eu6bn and seven deals this week on the back of improving appetite from investors.

Nordea Bank Finland and Bank of Ireland reopened the covered bond market on Monday, with the only euro benchmark sold last week having been a MünchenerHyp Eu500m November 2021 issue on the Tuesday (6 October).

Five more euro benchmark trades followed, and bankers noted that each had enjoyed higher levels of oversubscription than deals in recent weeks.

“In the last couple of weeks transactions were being executed but with very limited levels of oversubscription,” said a syndicate official. “What is encouraging is that this week, even though premiums are still large in terms of averages over the course of the year, oversubscription and granularity levels seem to have picked up to more normal levels.

“That is allowing the benchmark market to begin functioning properly again.”

Syndicate officials also noted that each of this week’s new deals were today trading inside their re-offers.

“What we have seen in most of the deals this week is more investors participating, more demand and good performance on the secondary, whereas in the previous weeks were had less investors participating, deals only just oversubscribed and deals widening on the secondary,” added one.

“That gives comfort for the coming week.”

Syndicate officials said that further supply is likely next week, with a number of issuers in the pipeline. Euro deals are expected from Banca Carige, Eika Boligkreditt, Hypo Tirol and Raiffeisenbank a.s., all of which recently completed roadshows or investor calls. Deutsche Apotheker- und Ärztebank will also be the road, from Monday until 27 October, ahead of a potential benchmark issue.

Syndicate officials at the mandated banks said the issuers would continue to monitor the market next week. A syndicate official at one of Eika Boligkreditt’s leads said that most issuers are still not in a rush.

“We only finished the roadshow on Tuesday, so we are still watching the market,” he said. “It is clearly improving but we will keep assessing things.”

Another syndicate official said the well-stocked pipeline meant spreads will likely remain higher next week.

“People have one eye on those pre-announced deals, and some of them are not necessarily the easiest credits,” he said. “So investors are aware that there is supply to come, and therefore new issue premiums will likely stay elevated around current levels.

“But the good news for those issuers and others is that there does seem to be liquidity to put to work.”

The syndicate official noted, however, that many issuers are either in or entering blackout periods soon.

“This is one thing that could support spreads, by moderating the pace of supply and giving secondary levels a chance to tighten,” he said. “But then the anticipated pipeline and some very visible events, including the Fed meeting at end of month, could offset this.

“So things are still in the balance.”

Another syndicate official said he expected the pace of covered bond supply to decrease slightly and return to a more normal rate next week

“The covered bond market is delivering trades with consistent new issue premiums that are finding good demand,” he said. “They show that if an issuer accepts that market dynamic, and is realistic about what kind of premium is appropriate, then they can get their deal done.”