After just €1bn of euro benchmark issuance in July, 2020 has set a new low for supply across the first seven months of the year, at around €69bn, and expectations for the coming months are subdued, even as a potential post-summer reopening of the market slowly approaches.

At the end of July, year-to-date euro benchmark covered bond issuance including taps totalled some €69bn, which is €33.25bn less than the €102.25bn of the first seven months of 2019 and also well below the €91bn average for 2015-2019. According to LBBW analysts, 2020 sets a new low for the first seven months of a year, a record previously set in 2014.

July issuance was just €1bn across two deals – a €500m seven year from Sparebanken Vest Boligkreditt and a €500m five year from Kookmin Bank on 1 and 8 July, respectively, with no CBPP3-eligible supply hitting the market. The €1bn is well down on July 2019 supply of €6.5bn across seven transactions, while in July 2018 as much as €10bn hit the market.

ING analysts noted today (Monday) that a further €40bn needs to be issued by year-end in order for their €110bn estimate for 2020 euro covered bond supply to be met – €4bn more than 2019’s post-summer supply, which they noted may be “ambitious” in light of €1.308tr have been drawn at the June TLTRO III.4 operation.

“Against this backdrop,” they added, “supply technicals should remain constructive to covered bond spreads for the rest of this year.”

Year-to-date issuance still exceeds redemptions by €8bn, according to ING, although they noted that the euro benchmark market shrank for the second month in a row in July and that covered bond redemptions in the second half are, at €67bn, greater than the €52bn repaid in the first half of the year.

Covered bond spreads have meanwhile remained stable in July, according to a syndicate banker, who cited the past two euro benchmarks from European issuers, Sparebanken Vest Boligkreditt and Berlin Hyp, as remaining around flat to their re-offer level.

He said that a theoretical euro benchmark priced today (Monday) would come with a minimal to no new issue premium.

“1bp-2bp maximum,” he said, “depending on jurisdiction, to the extent you are having this ECB programme backing it – it’s virtually zero. And I can’t see this changing unless supply were to truly grow massively, which is rather doubtful.”

There are no covered bonds in the pipeline for this week, according to another syndicate banker, who noted there would again be some supply from the German Länder segment.

“The summer break for financials is likely to continue for another two weeks,” he said, “as I would expect to see some activity around 17 August.”

He said there could then be a two week issuance window for opportunistic issuance before the European Union moves to issue under its €750bn recovery fund, which is anticipated for September.

The first syndicate banker, however, said that although mid-August typically marks a restart to euro benchmark issuance, it is difficult to say if it will be the case this year given that many issuers are well-funded and balance sheets are not growing.

“The question is where the need for fresh funds should come from,” he said, “besides roll-over activity or whatever, but let’s hope and wait.”