DNB Eu1.5bn 10s biggest since 2014 in ‘civilised’ covered bond market

DNB Boligkreditt attracted Eu2bn of orders to a Eu1.5bn 10 year covered bond today (Tuesday) that is the largest euro benchmark in the maturity since 2014 and comes after a slew of long-dated supply.

Some Eu3.75bn of euro benchmark covered supply was sold last week, across five deals between Monday and Wednesday, as the market reopened after a month-long summer lull. No new issuance emerged yesterday (Monday), with the UK having a public holiday, and DNB Boligkreditt was the only issuer to enter the covered bond market this morning.

“There is quite a queue, with a few issuers going on the road, but most are medium term projects and there is not a frenzy like last week,” said a syndicate official. “I expect there’ll be more, but it’s quite civilised and issuers are not stumbling over each other to get into the market.”

After announcing a mandate yesterday, DNB Boligkreditt leads BNP Paribas, HSBC, JP Morgan and UniCredit launched the 10 year issue this morning with guidance of the 7bp over mid-swaps area. Guidance was then revised to the 5bp area, before the deal was re-offered at 3bp and the size fixed at Eu1.5bn, with the book closing at Eu2bn.

The deal is the largest 10 year euro covered bond since November 2014, when Spain’s Santander sold a Eu1.75bn 10 year as part of a Eu3bn dual-tranche issue alongside a 20 year.

“DNB traditionally like to take size, but the investor base is a slightly different one at the long end of the curve,” said a syndicate official away from the deal. “To get Eu1.5bn with a 10 year is a good result.”

The deal is DNB’s third euro benchmark covered bond of the year, following a Eu1.5bn five year in January and a Eu1.5bn seven year in April. It is also DNBs’ first 10 year benchmark since 2012, when it sold two deals, a Eu1bn and a Eu2bn, with the maturity.

Some syndicate officials away from the deal suggested that DNB’s leads could have opened the books with a tighter initial spread, noting that a Eu1bn 10 year for fellow Norwegian issuer SpareBank 1 Boligkreditt was last Tuesday priced at 4bp over mid-swaps, down from initial guidance of the 8bp area. The deal was seen trading at 2bp, mid, pre-announcement.

“I think given where SpareBank 1 came, DNB could have started a bit tighter,” said a syndicate official away from the deal. “But it’s clearly not had a negative impact on the outcome.”

Bankers noted that DNB Boligkreditt covered bonds currently trade around 2bp tighter than SpareBank 1’s curve, suggesting fair value for DNB’s new issue was flat to mid-swaps. The differential between the two issuers is usually larger, bankers added, but has tightened on the back of recent spread compression across the covered bond market.

“DNB are the national champion in Norway, so that makes sense,” said a syndicate official.