Next week offers the best opportunity for issuers to launch euro covered bonds ahead of an expected September rush, according to bankers, who are optimistic that new benchmarks will emerge, suggesting Nordic names could be in the queue and citing opportunities at the long end.

The last new benchmark issue in the euro covered bond market came on 20 July, when Commonwealth Bank of Australia sold a Eu1.25bn 10 year. Supply has since been limited to taps, with the most recent a Eu250m Commerzbank increase of a July 2024 last Friday.

“It has been very quiet, but European issuers are now returning from their holidays to find they have more of a range of attractive issuance options than when they went away,” said a syndicate official. “Covered bonds, in a variety of currencies, are definitely an option that some issuers will be closely looking into.”

Bankers said that next week represents the best opportunity to launch deals ahead of what is expected to be a busy September.

“If you look at the week beginning on 29 August, then with the UK bank holiday on the Monday and the month-end in the middle of it, it doesn’t look the most appealing window for an issuer,” said a syndicate official. “Of the two, next week looks like the better option, and so I do expect we’ll see a few issuers come to market to try and beat that September rush.”

Other syndicate officials agreed, adding that investor demand has built up through the summer period.

“There’s the expectation that now investors are around, albeit some with minimal desk cover, trades can be done across sterling, dollars and euros,” said one. “I think the market is definitely open next week, and I’d be surprised if we don’t at least see a few mandates hit the screens.

“Any deals that do hit the market will surely go well, given fundamentals are just so supportive.”

One syndicate official was more measured, and suggested that some issuers will focus on strategic capital trades, having already fulfilled a large extent of their funding needs in covered bonds earlier in the year.

“We could see deals, but it is a hope, not a conviction,” he said. “Everyone is pitching, but personally, I don’t have any firm mandates yet.”

Bankers said there are no obvious candidates for which issuer or jurisdiction might reopen the market. They said that ordinarily German names would be at the front of the queue, but noted that Pfandbrief issuers have been active through the summer and may therefore have more limited funding needs.

Since the euro market reopened on 4 July after the UK’s Brexit vote, German issuers have sold Eu3.95bn equivalent of benchmark supply, including seven deals in euros, comprising both taps and new issues, and three new US dollar issues.

“However, it is notable that Scandi supply has been limited,” said a syndicate official. “I think there will be one or two Nordic issuers considering being the first mover, especially given that they are some of the first to return from the summer break and will have had a little more time to prepare.”

Syndicate officials also noted that French issuers are often among the first to re-enter the market, and that French supply has been relatively limited in recent months. French issuers sold Eu16.1bn across 16 benchmark covered bonds between January and April this year, but only Eu1.25bn of supply – a Eu250m tap and a Eu1bn 10 year issue from Caffil – has emerged since.

However, syndicates said that French issuers might be hesitant to launch new benchmarks while their covered bond spreads are trading inside Pfandbriefe, having tightened beyond German comparables after substantial spread compression through the summer.

“I’m not sure it would be possible for a French name to print a new benchmark at these levels,” said one. “For them, the private placement market is an alternative.”

Bankers also expect that new benchmarks will meet with strong demand in almost any maturity, and said that recent negative yielding supply has shown that investors are willing to buy at negative yields even in medium maturities – with Commerzbank’s July 2024 tap last week having attracted over Eu600m of orders despite offering a yield of minus 0.073%.

Some syndicate officials said the long end looked particularly interesting for issuers, citing as an example a Eu750m 20 year issue for the state of Berlin that was yesterday (Thursday) priced at flat to mid-swaps, with a coupon of 0.625% and a price of 98.034% to yield 0.731%.

“There is definitely an opportunity for issuers to take advantage of steepness in the swap curve and lock in long-dated funding at what would be very nice levels,” said a syndicate official. “Of course, it’s a different investor base that far out the curve, but Eurozone banks will be able to rely on the ECB for support.

“It’s something that issuers will be looking at.”