With euro benchmark issuance as good as over for the year, 2023 gross supply is set to be the second highest ever, behind 2022. A decline to €160bn-€180bn is being widely forecast for 2024, although the amount investors may be asked to absorb could push the envelope.

Year-to-date euro benchmark new issuance stands at €185.4bn, and with several taps needing to be added, the year’s total is expected to come in around €10bn below the €198.6bn overall issued last year.

A figure of around €190bn would still make this year the second strongest on record.

LBBW: Euro benchmark issues, y-o-y comparison (EUR bn)

Source: LBBW Research

It is also some 10% above the average forecast among 15 analysts at the end of 2022 of €173bn. Among these forecasts, DZ and Erste were closest to the ultimate figure, having each anticipated €185bn, while only two banks of the banks surveyed expected more than €190bn, NordLB having gone for €197.5bn and HSBC €200bn.

(As with the forecasts included below, where analysts have communicated their forecasts as a range, e.g. €170bn-€180bn, we have taken the mid-point and done our best to understand some less explicit analyses.)

The average forecast among 17 analysts for 2024 euro benchmark issuance is €170bn.

Note: figures compiled over the past month, during which some have been updated – if any bank’s forecast is out-of-date or otherwise needs amending or adding, please let us know

Natixis’s Jennifer Levy has the most bullish expectations, with a forecast of €180bn-€190bn, the lower end of which is greater than or equal to the highest end of all but one banks’ expectations.

“Despite the slowdown in origination of housing loans,” she says, “covered bonds will continue to be the product favoured by issuers given i) the refinancing of TLTRO loans, ii) a high level of covered bond redemptions (€116bn), iii) the current spread differential between senior preferred and covered bonds (c.55bp vs c.57bp in January 2023) as well as the compliance with MREL ratios for most European banks and iv) the potential MRR (minimum reserve requirement) increase impacting the excess liquidity reserve as well as the Liquidity Coverage Ratios.”

The lowest forecast is €155bn from Citi, with Jussi Harju citing as the main headwinds limited remaining TLTRO III maturities, lower overall funding needs due to slowing residential mortgage lending, and lower benchmark covered bond redemptions.

A year-end drop-off in supply after a promising start to November – which had included some pre-funding – meanwhile contributed to NordLB, for example, bumping up its 2024 forecast from €150bn-€155bn to €169bn [updated from €160bn].

DZ analysts are at the mid-point of those surveyed, forecasting €170bn, after having taken a €165bn baseline of what might “ordinarily” be expected from active and potentially new issuers and then considered the impact of factors set to influence issuance in 2024, as summarised below.

DZ: New issue volume could reach €170bn in 2024, taking into account special influencing factors

Note: SP = senior preferred, SNP = senior non-preferred. Source: DZ BANK Research

Redemptions are one of the regular factors playing into supply and being around €116bn in 2024, mean that if gross issuance hits the analysts’ average of €170bn, net supply will be €54bn.

While this is no record, several analysts highlight the absence of CBPP3 buying in 2024, after the end of reinvestments during this year, as being of critical importance. Crédit Agricole’s Florian Eichert, for example, notes that CBPP3 redemptions will be €32bn across 2024, around double this year’s figure, meaning that investors will have to absorb the same amount of bonds as in 2023, a figure in the mid-€70bn range, if his €160bn forecast is hit – or the most in a decade if the average forecast of €170bn materalises.

Crédit Agricole: Change in free-float of euro benchmark covered bonds (EUR bn)

Source: Bloomberg, ECB, Crédit Agricole CIB

“We are confident this is doable,” he said of the mid-€70bn range. “However, given we have seen two years with heavy net buying already and some fatigue having set in during H2, we also believe that far larger issuance volumes would run into stronger resistance from covered bond investors and covered bond spreads may well end up so close to senior preferred levels, that issuers would likely opt to go down the capital structure.”