Dollar attractions cited as Stadshypotek sells $1bn covered

Stadshypotek sold a $1bn (Skr8.70bn, Eu931m) five year 144A covered bond on Wednesday of last week (2 April) and bankers suggested that although the deal had not achieved the same level of arbitrage as some recent transactions, European issuers could still see the dollar market as attractive.

Leads BAML, JP Morgan, Morgan Stanley and RBC launched the five year offering with initial price thoughts of the mid-swaps plus high 30s area, then set guidance at 37bp, a level that was maintained for the re-offer.

A syndicate official at one of the leads said the deal offered only a “modest” new issue premium, seeing fair value as being around 33bp-35bp, noting that Stadshypotek October 2019 paper had been trading at 29bp, bid. He said the price achieved was competitive compared with what the issuer could have achieved in alternative markets.

A banker away from the deal said that it made sense for the deal to come at the same price as a Toronto-Dominion $1.75bn five year issue the previous week, saying that they are both strong issuers, triple-A rated for covered bonds, and tend to trade at around the same level. Stadshypotek could have come possibly come marginally tighter, he suggested, while noting that Toronto-Dominion’s trade was pre-announcement at roughly 35bp over mid-swaps.

He also said that the Stadshypotek deal came roughly flat to the issuer’s euro curve.

“This deal hasn’t achieved the same level of arbitrage as some recent ones have, as the cross-currency has moved in the last few sessions,” he said.

Noting that US dollar supply had been particularly high this year, the banker said the market had been attractive to both investors, because of the higher yields on offer, and for issuers, as the pricing had been attractive when swapped. He suggested that now levels have shifted, dollar supply might slow, but said issuers would still look on an opportunistic basis, especially those with dollar assets.

The lead syndicate official agreed that conditions were not as favourable for dollar issuance as they had been, but said European issuers still see the dollar market as a good option.

“With the levels of new issuance activity we’ve seen, and with deals like Toronto-Dominion’s going well, interest has been reinvigorated in the dollar market,” he said. “Investor interest is high and the levels are attractive for European issuers.

“It is now broadly flat to euros, rather than materially through, but issuers still see it as competitive.”

Including a Bank of Nova Scotia $1.1bn issue this Tuessday, the number of dollar covered bonds launched so far in 2015 now exceeds last year’s total.