Euro covered bond issuance is this month expected to surpass April’s, with last month the quietest so far this year on the back of the TLTRO take-up and European blackout periods, but expectations are still tempered by banks’ perceived lower funding needs, despite an encouraging start to the week.

Euro benchmark covered bond supply totalled just Eu7bn in April, only around half of the Eu13.75bn issued in April 2016. Redemptions of around Eu19bn resulted in negative net supply of around Eu12bn.

Last month’s supply is also the lowest of any month this year, down from Eu11.5bn in March.

The lack of issuance was to a large extent attributed to take-up of the fourth and final tranche of the second series of the ECB’s targeted longer-term refinancing operations (TLTRO II), the magnitude of which was announced at the end of March and almost double what many market participants had expected.

A market rally and boost to sentiment that followed the first round of the French presidential election encouraged Crédit Agricole, Swedbank and UniCredit to launch Eu1.5bn, Eu1bn and Eu750m deals, respectively, last week and boost the month’s total. Most issuers nevertheless chose to make use of the improved conditions to tap the senior unsecured market, however, with euro benchmark senior supply totalling some Eu13bn last month. Blackout periods were also a factor, with many European banks reporting around the end of April or early May.

Bankers said that with many banks having now exited their blackout periods, or set to in the coming weeks, issuance this month should surpass April’s modest total.

“It’s been a fairly encouraging start, with Eu2.25bn of supply already in the first two days of activity,” said a syndicate banker. “That already sets us on course to top April, but it should not be difficult to top such low issuance in any case.”

Other bankers agreed, but noted that many of the factors that moderated supply in April will still be in play in the coming months.

“The big question is how much Eurozone banks really want to issue after the TLTROs,” said one. “What we will likely see is that those that do decide to come to the market do so at the long end, rather than in the shorter maturities offered by the TLTROs, and we have indeed already seen this with Crédit Agricole, MüHyp and now Caffil printing 10 or 15 year trades.

“For now, there are not many candidates in the pipeline, so we are all working to find more banks who want to take advantage of these very nice conditions.”

Westpac could be set to issue a euro benchmark covered bond later this month, having mandated leads for a roadshow ahead of a covered bond or senior unsecured issue. Royal Bank of Scotland is on the road this week to market a potential euro and/or sterling benchmark.