Eika among candidates hoped for in improving euro covered

The euro covered bond market was quiet this week, with only one benchmark issued, but bankers are optimistic that successful deals will be done next week after sentiment improved and spreads tightened and with a handful of issuers, including Eika Boligkreditt, having been on the road.

A Eu500m November 2021 issue from Münchener Hypothekenbank was the only euro benchmark covered bond this week, and bankers had expected supply to be modest after many recent trades met with limited success in an environment of widening spreads and low demand.

MünchenerHyp printed its new issue at 10bp through mid-swaps, attracting Eu750m of orders on Tuesday. Syndicate officials at and away from the leads said that the deal offered a concession of 4bp-6bp, seeing MünchenerHyp’s October 2020s and April 2021s both quoted at minus 16bp, mid, although they noted that fair value is difficult to pin down with secondary levels being squeezed.

They said, however, that other issuers could draw little encouragement from the trade, even though the relatively slim premium represented a good result, because the deal received strong domestic support that other issuers could not count on.

“With it being a German Pfandbrief and a very domestic product, I don’t think there is much we can take away from that deal,” said Viet Le, financial institutions and covered bonds syndicate manager at Crédit Agricole CIB. “The trade looked fine even though it probably did not exceed expectations; they paid around 4bp of new issue premium, which is probably the minimum you would look into using for a core new issue in the current market.”

While lessons from MünchenerHyp’s trade may have been limited, syndicate officials said they are hopeful new issues could go well next week, as market sentiment was seen as having improved and secondary spreads settled after the break from primary supply. They said core spreads have tightened 2bp-3bp over the week, and peripherals up to 10bp depending on the name and jurisdiction. Recent issues from SCBC, Swedbank and SR-Boligkredit were all seen trading at around re-offer, after having being marked 2bp-3bp wider at the start of the week.

Le said he does not expect many issuers to tap the market next week, but is hopeful supply will increase, and said deals could go well if conditions remain as they are.

“After the recent widening, valuations look attractive, whether it is from an absolute spread perspective or looking at value versus govvies,” he said. “From an investor’s standpoint, this is an interesting entry point if you want to add risk.

“All in all, next week could be a good window for those willing to use it.”

Le noted that most Nordic issuers are now in blackout periods, but said some were still in a position to issue covered bonds, while noting that Eika Boligkreditt is in the pipeline.

Eika will on Tuesday finish an investor roadshow ahead of a potential euro benchmark deal via leads Deutsche, Natixis, Nordea and UniCredit.

“We have had a roadshow with a potential euro transaction in the second half of the year in the schedule for quite some time,” said Kristian Fiskerstrand, vice president, funding at Eika Boligkreditt. “Despite the increase in market volatility we believe this strategy is still valid.”

He said that the roadshow would allow the issuer to collect feedback from investors ahead of the deal, as well as the opportunity to provide an update on its high quality cover pool and Norway’s strong financials.

Fiskerstrand said that Eika will continue to be a regular issue in euros. Its most recent euro benchmark issue came in March 2014, when it sold a Eu500m seven year issue. Fiskerstrand noted that the deal corresponded to roughly 40% of Eika’s total issuance in 2014, with the rest sold on the Norwegian market. He added that so far in 2015 Eika has issued Norwegian krone funding equivalent to around Eu750m in total.

RBC meanwhile reopened the US dollar market on Tuesday with a $1.75bn (Eu1.55bn) five year issue that was priced around 25bp wider than the last wave of dollar supply at a final spread of 72bp over mid-swaps, equivalent to around 25bp over mid-swaps in euros. Syndicate officials said the higher spread paid by RBC versus pre-summer deals reflected secondary widening in the meantime, and that the size of the deal showed strong demand for dollar paper.