Erste Bank Research Team
Erste Bank
We expect issuance activity on the covered bond market to normalize further in 2024. This means a further moderate decline in issue volumes compared to 2023 and, above all, compared to the record year 2022. This will affect both the overall market, where we expect a volume of EUR 170-180bn, and the Austrian market, which should reach an estimated issue volume of EUR 11- 13bn.
One of the main reasons for the expected decline in issuance volume is the dwindling influence of TLTRO3. Only around EUR 450bn of TLTRO3 tranches will be due next year. Part of this will also be refinanced by covered bonds in the coming year. However, we expect the impact of TLTRO3 maturities on the covered bond issue volume to gradually decline until the facility is repaid in full in December 2024.
Since the interest rate turnaround, credit growth at banks in the eurozone has slowed noticeably. Both a lower demand for credit and a tightening of lending rules have been observed. We expect credit growth to remain at a low level in the coming year. This should also have a dampening effect on issuing activity in the covered bond market.
The issue volume in the ESG covered bond segment has shown steady growth since 2021. The issue volume has also increased to EUR 21bn in 2023. We expect further moderate growth in the ESG segment of the overall covered bond market in 2024, with stable development expected for the Austrian market.
The trend towards higher risk premiums has continued in 2023. Covered bond swap spreads have widened continuously since the beginning of the year, with an increase in momentum after the summer break. In addition to increased risk aversion on the part of investors, we see the relatively high volume of new issues as the main reason for the widening of spreads.
In view of the expected lower supply of covered bonds and the already comparatively high risk premiums, we see a limited risk of a further significant widening of covered bond spreads in the coming year. A more stable interest rate trend should also limit the risk of wider spreads
This document is intended as an additional information source, aimed towards our customers. It is based on the best resources available to the authors at press time. The information and data sources utilised are deemed reliable, however, Erste Bank Sparkassen (CR) and affiliates do not take any responsibility for accuracy nor completeness of the information contained herein. This document is neither an offer nor an invitation to buy or sell any securities.
Recommended Content
Editors’ Picks
EUR/USD stays below 1.1100, looks to post weekly losses
EUR/USD continues to trade in a narrow range below 1.1100 and remains on track to end the week in negative territory. Earlier in the day, monthly PCE inflation data from the US came in line with the market expectation, failing to trigger a reaction.
GBP/USD struggles to find a foothold, trades near 1.3150
GBP/USD stays on the back foot and trades in negative territory at around 1.3150 on Friday. The US Dollar holds its ground following the July PCE inflation data and doesn't allow the pair to stage a rebound heading into the weekend.
Gold retreats toward $2,500 ahead of the weekend
Gold stays under modest bearish pressure and declines toward $2,500 in the American session on Friday. The 10-year US Treasury bond yield edges higher toward 3.9% after US PCE inflation data, causing XAU/USD to stretch lower.
Week ahead – Investors brace for NFP amid Fed rate cut speculation
Here comes another NFP week, with investors eagerly awaiting the results as they try to discern the size and pace of the Fed’s forthcoming rate cuts. The weaker than expected July numbers triggered market turbulence, instilling fears about a potential recession in the US.
Easing Eurozone inflation to back an ECB rate cut in September Premium
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices on Friday, and the anticipated outcome will back up the case for another European Central Bank interest rate cut when policymakers meet in September.
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.