Hopes are high for a “heavyweight” month of more diverse euro covered bond issuance in September, potentially led by Banco Desio and Nykredit, following modest, German-dominated supply in August and despite strategic senior trades stealing the limelight this week.

Just Eu3bn of euro benchmark covered bond supply was brought to market in August, comprising five deals, all of which came in the second half of the month – after MünchenerHyp reopened the market on 16 August – and all but one of which were German mortgage Pfandbriefe – Denmark’s BRFkredit being the only issuer to offer a different flavour with a Eu500m seven year on Wednesday of last week (23 August).

August supply was therefore a marginal increase on that of July – which with Eu2.25bn of issuance was the quietest month of the year – but was notably lower than August 2016, when Eu5.5bn was issued. Not since 2014 has issuance been lower in August.

“The August activity was a mainly German show, which made sense given that many investors in the German market were back at work before their peers abroad,” said a syndicate banker. “From other issuers, we get the feeling that many have been happy to their time to get back up to speed upon returning from the beach.”

This week just one euro benchmark covered bond was issued – a Eu500m five year Pfandbrief for pbb on Tuesday – and the focus in the euro financials market was instead on strategic higher beta trades, with, among others, BBVA and CaixaBank selling senior non-preferred debuts, and UBS and SBAB offering OpCo senior unsecured bonds.

“Conditions are supportive across the capital structure on the financials side,” said a syndicate banker. “This week’s senior deals were promising, but they show that investors are looking for deals where they get better compensation.

“We know that covered bonds remain on the buying list, but we hear from many investors that they prefer senior non-preferred, TLAC/MREL issuance right now.”

In September 2016, just Eu5.75bn of benchmark covered bonds were issued. This was unusually low, however, with adverse market conditions blamed, and bankers said they expect issuance this month to exceed the underwhelming 2016 figure – while not quite reaching the heights of 2015, when Eu24.25bn was issued.

“September is always a heavyweight month when it comes to issuance prospects, and I think there will be good chances for covered bonds, too,” said one.

Nykredit could be one of the first to enter the market, having today announced that it expects to issue its first syndicated euro covered bond next week, a Eu500m no-grow long five year (October 2022) FRN, after completing investor meetings yesterday (Thursday). Italy’s Banco Desio held an investor meeting in Milan yesterday ahead of a potential euro benchmark covered bond debut, which is also expected next week.

Syndicate bankers said two to three banks in “the German-speaking region” are also monitoring the market and could launch new issues next week.

“The pipeline is filling up, and I feel quite positive that we’ll see more activity on the covered bond side,” said one. “I’m looking forward to this month.”

Next week will offer only a shortened window, as the ECB will hold the next meeting of its governing council on Thursday. Throughout the summer, market participants had widely expected president Mario Draghi to use the September meeting to flag a tapering of the ECB’s QE programme.

However, those expectations are now lowered, after no hints emerged in Draghi’s Jackson Hole speech nor in ECB minutes, and with inflation still below the ECB’s target. Many market participants are now betting on a tapering announcement after the next governing council meeting, in October.

“It feels like many people now see the ECB meeting as a non-event,” said a syndicate banker. “But either way, if you are going to do a deal next week, you would be best advised to have it done by Wednesday afternoon.”