LBBW is lining up a 7.5 year euro benchmark mortgage Pfandbrief to kick off euro benchmark issuance next week, as bankers expect supply and conditions to remain strong, with January 2022 already proving much busier than the same period last year.

After the first two weeks of the new year, euro benchmark covered bond supply has already reached €14.75bn, which is more than total supply across the whole of January 2021, which was €12.75bn. Year-to-date issuance in 2020 was just €4.25bn, while this year also beats year-to-date 2020’s €13.75bn.

“In our view, while things can change quickly these days, the first two weeks suggest that euro benchmark covered bond issuance should increase significantly in 2022, in line with the consensus,” said Bernd Volk, strategist at Deutsche Bank.

Analysts’ average forecast for full-year 2022 euro benchmark supply is around €120bn.

The sterling market also continued its strong start this week, with Yorkshire Building Society printing the tightest ever five year Sonia-linked covered bond on Tuesday, a £500m social bond, while on the same day CIBC opened the dollar market for 2022 with its largest ever benchmark covered bond, a $2.5bn five year.

Landesbank Baden-Württemberg (LBBW) is set to add to supply on Monday, having today (Friday) announced a 7.5 year euro benchmark Hypothekenpfandbrief, with BNP Paribas, Crédit Agricole, Erste, ING, LBBW and UniCredit as leads.

According to pre-announcement comparables circulated by the leads, LBBW July 2027s and September 2028s were quoted at minus 4bp, mid, Helaba July 2027s at minus 6.5bp, BayernLB November 2029s at minus 5bp, and BayernLB May 2030s issued yesterday (Thursday) at minus 4.5bp.

“We’ve had a pretty decent start and we just announced LBBW for Monday,” said a syndicate banker at one of LBBW’s leads, “and I’m sure there’s going to be further supply next week.

“You’ve had some issuers preferring to be more active in senior and other parts of the capital structure so far,” he added, “but that doesn’t mean that they won’t look at covered next week, for example.”

The covered bond market has remained immune to softness witnessed in some senior issuance this week, and bankers expect conditions to remain strong.

“Even if rates volatility remains and the covered market is close to the rates market, we are not concerned about the state of play in the near to medium term,” said one.

“Volumes are higher than they were a year ago,” he added, “and execution arguably even stronger compared to the end of the year, which left everyone surprised with its strength.”

Even if demand at the longer end of the curve was seen to be somewhat weaker than for shorter maturities, Joost Beaumont, senior fixed income strategist at ABN Amro noted that investor appetite for covered bonds remained robust, with most deals performing after re-offer.

However, a syndicate banker noted that primary market activity may slow next week as more European banks enter their blackout periods.