Covered bond supply will remain brisk in November, with conditions constructive and banks exiting blackouts, bankers expect, but they warned that deals will likely be piled into increasingly scarce windows, while some core issuers may prefer the senior unsecured market.

Three euro benchmark deals totalling Eu2.5bn this week took supply for October to Eu16.25bn. Issuance was down from September’s Eu24.25bn, which made that the heaviest month since January 2012, but compares with some Eu11.5bn of supply in October of last year. Analysts said October’s net supply was slightly negative, given redemptions of around Eu18bn.

Bankers said the pace of supply will likely remain at around the same level in November, with many issuers exiting blackout periods in the coming weeks.

“I think that we will see gross supply of around Eu10bn-Eu15bn, which is more likely to be at the higher-end of the forecast,” said Joost Beaumont, senior fixed income strategist at ABN Amro. “This would continue the trend that this year’s new issuance would exceed that of last year – when Eu13.5bn of euro benchmarks were launched.”

Some syndicate officials agreed, adding that they expect issuers to be encouraged by this week’s deals, which were seen as taking encouraging levels of demand, and improving market sentiment.

“The market feels far more constructive now than it did at the end of last week,” said one.

Another syndicate official said he expects next week in particular to be busy.

“I think those issuers that have been in blackout will be assessing the markets now and seeing that they are in pretty good shape, and deciding that they’d like to join in, too,” he said.

However, syndicate officials said that the covered bond market had slightly underwhelmed relative to other FIG markets on the back of an ECB meeting last week at which president Mario Draghi raised expectations of an extension of the central bank’s quantitative easing programme.

“Overall the broader market is in very good shape, with other asset classes having seen a new leg of rally,” said one. “However, the covered market has somewhat lagged the performance we’ve seen in other asset classes, particularly post-Draghi’s comments last week, and other central bank announcements.”

Suggesting this was partly due to heavy covered bond supply in September and October, syndicate officials said issuers that had the option might prefer senior unsecured or subordinated deals in the next couple of weeks.

“The challenge for covered bonds is that they were a pretty straightforward choice for issuers on the basis that execution risk was relatively low, new issue premiums were only half of what they’d be paying in senior, and confidence around minimum volumes was probably higher in covereds than it would be in senior,” said one. “Many of those reasons to tick the covered bond boxes have probably now fallen away relative to senior unsecured.

“Execution risk and NIPs in senior have come down materially, and volumes are probably higher on average in the senior unsecured market than would be available in the covered market, at present.”

The syndicate official added that peripheral issuers, for whom access to the senior and subordinated markets is more limited, could be an exception to this, while other sectors that have been relatively inactive, such as French banks, might also prefer covered bond issuance next month.

“I can see a clear rationale for preferring to print a French covered bond in November rather than in January, because of the expectation of SSA issuance,” he said. “When SSA issuers all start at zero again on 1 January they are going to be paying a pretty decent new issue concession.

“So if you’re a pretty tight trading covered bond name, I can see it making sense to print at the back end of this year rather than the start of next.”

Bankers also said issuance would not be straightforward in the coming weeks, with windows for issuance running out as the end of the year approaches.

“There’s probably less than 10 days to execute this year in terms of good windows,” said a syndicate official. “That means you’re likely to see on decent days a number of transactions on top of each other, with issuers inclined to pile on rather than wait.”

Another syndicate official was, however, more optimistic about the number of good trading days remaining.

“Looking at the calendar, November seems relatively clear for new issuance,” he said, “but there are only around five or six weeks left, and no doubt that will disappear quickly.”

Beaumont added that he expects issuers will prefer to come to the market in November rather than December, which, he noted, tends to be a quiet month.

“I expect that the windows of opportunity will narrow moving towards the end of next year, as market volatility is likely increase on the back of speculation whether the Fed will hike in December,” he said. “As a result, new issues will continue to be concentrated on days that the door to the primary market is open.”

Syndicate officials noted that there are still anticipated euro benchmark deals in the pipeline, with Hypo Tirol and Deutsche Apotheker- und Ärztebank (apoBank) both having been on the road.

A syndicate official at one of Hypo Tirol’s leads said the Austrian issuer is continuing to monitor the market, while a syndicate official at one of apoBank’s leads said the German bank has further investor meetings scheduled for early next week.