An Oma Savings Bank sub-benchmark debut is on track for next week, but December is expected to bring only limited euro covered bond supply, with the pipeline almost cleared and demand waning, while selective investors are seen to be focussed on markets offering greater spreads.

Euro benchmark covered bond supply totalled Eu8.75bn in November, up from Eu6.75bn in November 2016, albeit well below the Eu17bn issued in November 2015 – a year of particularly heavy supply.

Issuance was concentrated in the first half of the month, with the week commencing 14 November the busiest week in the market since May, as seven issuers printed a total of Eu4.25bn of benchmark supply. Supply subsequently slowed as issuers’ needs were filled and secondary performance grew limited as record tight spreads ceased grinding tighter, with investors becoming more selective.

Only one euro benchmark covered bond was launched this week, a Eu750m seven year issue for Stadshypotek. The deal is the tightest post-crisis euro benchmark from Sweden, but a relatively slow execution – of some three hours and 45 minutes – and a book of Eu850m plus were seen by some bankers as signalling that the primary market is slowing down.

“We can see now that investors do not feel forced to buy at any level,” said a syndicate banker away from Stadshypotek’s leads.

Bankers therefore expect December to be quiet, with the pipeline mostly cleared.

“I am running out of ideas for who may come this side of the year end,” said one. “If there are still a few contemplating it, the slightly less enthusiastic response to Stadshypotek’s trade may deliver an argument not to do anything this year.”

Another syndicate banker said any issuer that comes to the market would probably have to offer a larger premium than recent deals to ensure strong demand, but said some issuers might still deem this worthwhile as it would provide an opportunity to beat the traditional January rush.

“Conditions are still benign, and issuers are still willing to entertain dialogue on potential pre-funding trades,” he said. “Investors are now not as eager as we have seen, but does that mean that should stop issuers from taking volume out the market?

“I am absolutely confident that investors are still in place, but this is the time of the year that investors are looking for a bit more relative value. If you as an issuer want to take out volume, you need to leave some basis points extra for the investor.”

In December 2016 just one euro benchmark covered bond was issued, a Eu1bn five year for Deutsche Bank SAE on 7 December. December 2015 was more active, with Eu4.25bn issued across four benchmark deals, the last on 9 December.

“I am not sure if we will have the usual pattern of the covered bond market closing on 6-7 December,” said a syndicate banker. “I think the focus of attention is already shifting to markets that look more attractive in spread terms, and that is where demand has been strongest.”

This week, ING sold a Eu1bn 10 year HoldCo senior bond, while Banco Sabadell issued a Eu1bn long five year senior unsecured bond, the latter deal attracting more than Eu3bn of demand. Bankers expect more senior supply next week, given the demand for this week’s trades.

In the covered bond market, Oma Savings Bank is the only issuer left with a publicly announced euro-denominated deal in the pipeline. The Finnish bank will complete a European roadshow today – with leads Danske Bank, LBBW and Nordea – marketing an inaugural sub-benchmark issue that is expected to be launched next week.

This morning the issuer announced the deal could be launched as early as Monday, adding that it will target the five year maturity with an expected deal size of Eu250m.

“We aim to catch the last window before this market closes,” said a syndicate banker at one of Oma’s leads. “Away from covered bonds, we have seen other products get decent execution throughout the week, such as Sabadell’s senior issue, so we can see that investors are still around.”

Euro benchmark covered bond issuance stands at Eu110.7bn year-to-date, including taps, implying that 2017 supply is on track to meet the Eu110bn-Eu115bn forecast by many analysts at the end of the first quarter, when expectations were lowered after the ECB announced higher than expected uptake of its TLRTOs.