Covered books bulge despite dwindling new issue concessions

As of the end of October, banks had printed €146.9bn of benchmark-sized covered paper, roughly in line with the €148bn printed over the same period in 2024. And although this was down from the bumper years earlier in the decade — €167.7bn was issued over the first 10 months of 2023 — those that opted to tap the market this year enjoyed stellar issuance conditions, despite bouts of volatility.

Issuance was heaviest during the first quarter, with €50.1bn placed. This, however, was down sharply from the corresponding quarters in 2023 and 2024 when €80.7bn and €73.4bn was issued, respectively.

The slow start was thanks to a repricing of the asset class in late 2024 driven by moves in the Bund-swap spread, which encouraged issuers to use the senior unsecured market instead.

That meant issuers needed to pay higher premiums on their covered bonds and there was a greater degree of price discovery.

The first trades — LBBW’s €1bn 2.625% February 2030s and Crédit Agricole Italia’s €1bn 3.25% February 2034s — offered premiums of 6.5bp and 9.25bp, respectively. However, the market settled, with most deals that followed offering concessions in the low single digits.

In fact, new issue concessions remained low throughout most of 2025. Banks had to pay an average premium of 1.3bp over the first 10 months of year — 50% less than 2024’s 2.6bp average.

The average concession peaked at 1.9bp in a far busier than usual June. In a break from convention, June was the third busiest month of the year after January and September, with €20.35bn placed.

This higher average premium helped the market digest the bumper volumes and encouraged issuers bring longer dated deals.

Deutsche Kreditbank, for example, needed a concession in the low single digits to seal the longest syndicated euro covered bond since 2022 — a €500m 3.25% June 2045 public sector deal.

Despite periods of volatility impacting the wider market — like US tariff announcements first made in April or France’s repeated unsuccessful attempts to form a stable government and pass a budget — the covered bond market remained open throughout the year.

Excluding the deals priced in April ahead of the first US tariff announcement, issuers paid an average concession of 2.6bp. However, as the market entered May, the average premium fell to 1.2bp.

Although supply over the first 10 months of 2025 compared to 2024 and 2023 was lower, demand was up. Investors pledged €386bn of orders, compared to €377.5bn in 2024 and €317.5bn in 2023. The average orderbook size was up at €2.14bn compared to €2.04bn in 2024.

So hot was demand that January marked the highest monthly average bid-to-cover ratio recorded by Primary Market Monitor — 4.55, eclipsing the second highest average set in February 2024.

Bausparkasse Schwaebisch Hall (BSH), which attracted an order book more than 12.2 times the size of its €500m 2.875% January 2031s, was a key example.

But BSH was not alone. In fact, 25 of the 29 tranches issued in January had a bid-to-cover ratio higher than 2.81 — the average over the first 10 months of the year.

Strong demand persisted throughout 2025. Despite near invisible new issue premiums throughout the year, the average monthly bid-to-cover ratio for 2025 through to the end of October did not drop below 2.2 times.