Market participants expect a moderate rise in euro benchmark supply in May on the back of tightening spreads and greater demand, with more diversity of issuers hoped for after two months of predominantly French and Canadian activity.

€8.25bn of euro benchmark supply across six deals hit the market in April, €7bn of it from French issuers, with the only other issuance a €1.25bn Bank of Nova Scotia tap. This compares to €8bn of euro benchmark supply in March and €9.25bn in April 2019, while in 2018 April supply was as much as €16.8bn, noted DZ analyst Verena Kaiser, who cited the impact of the coronavirus pandemic on last month’s primary market volumes.

A syndicate banker said it is difficult to derive much from the figures given the significant widening of spreads that occurred when the full impact of Covid-19 was felt in financial markets around mid-March, which made April a “very unusual” month.

“It’s like a 12 cylinder engine running on one cylinder,” he said, “so I wouldn’t regard it as a month with a real market, although this is nobody’s fault – this is just what the world is at this stage.

“If it were €8.5bn coming from seven jurisdictions in April, this would be more of a market than we are currently having,” added, “and I would be surprised to see May end as lopsided as April. So I would put last month in the drawer – otherwise I hope blissful oblivion will take over sooner rather than later!”

Newly-attractive TLTRO III terms announced by the ECB on Thursday, including a 25bp cut, will invariably draw issuers away from the covered bond market, according to analysts.

“It’s hard for a treasurer to justify not taking this money and keeping the powder dry for a rainy day,” said one, “but supply won’t remain as slow as we have seen.”

The syndicate banker also suggested issuance will pick up modestly in May, given that spreads in the secondary market have tightened and demand for new euro benchmarks has risen.

“We are improving,” he said, “as are most other asset classes. You could say we are getting back towards ‘issuer’s market’ territory. So I do hope one or two are tempted into get this going in the not too distant future – perhaps the non-ECB Scandinavians.”

The last two euro benchmarks, a €1.25bn seven year from CRH on 23 April and a €1bn five year from Caffil last week, attracted books of around €4.5bn, the biggest since February. Following a €1bn four year transaction from CFF on 6 April that was priced at 35bp, spreads have moved progressively tighter, with Caffil last week printing its deal at 22bp, the tightest spread achieved since market volatility peaked in the week of 9 March.

Another syndicate banker said the wave of French supply in April proved constructive in successfully repricing the secondary market.

“BPCE SFH and Crédit Agricole in March crystallised a plus 40bp number,” he said, “but from there, they edged tighter at an extremely fast pace, as they had CRH at 31bp, then Caffil at 22bp, which is now trading at around 16bp-17bp.”

“On that basis, I would not be surprised to see more supply than we have in the course of April, and that in May demand for the asset class will remain strong, particularly from bank treasuries.”

Estonia’s LHV Pank is a step closer to being able to launch the second covered bond from the Baltics, after Moody’s today (Monday) assigned a provisional Aa1 rating to its mortgage covered bond programme. The bank in March told The CBR it was hoping to launch a sub-benchmark debut before the Nordic summer holidays.