Nordea covered bond reopener helps market to Eu6bn week

Nordea Bank Finland reopened the market on Monday alongside Bank of Ireland as euro covered bond supply picked up to reach Eu6bn and seven deals this week on the back of improving appetite from investors.

Nordea Bank Finland’s Eu1.25bn seven year issue arrived on Monday, with the only euro benchmark sold in the previous week having been a Münchener

Hyp Eu500m November 2021 issue on the Tuesday (6 October).

Leads Barclays, LBBW, Nordea and Société Générale priced Nordea’s issue at 7bp over mid-swaps on the back of some Eu2bn of demand, after having launched the transaction with initial price thoughts of the 10bp area and set guidance of 8bp plus or minus 1bp.

Syndicate officials said Nordea’s deal was effectively a market reopener, as they said non-German issuers could interpret little from MünchenerHyp’s mortgage Pfandbrief the previous week and the last previous euro benchmark had been on 1 October. The other deal this Monday was a Eu750m long five year from Bank of Ireland Mortgage Bank.

Robert Chambers, FIG syndicate manager at Crédit Agricole CIB said the size of Nordea’s order book was particularly impressive even when considering that the deal is eligible for ECB’s covered bond purchase programme.

“For the first issuer to come to the market after a fairly long break and put exactly the right new issue premium on the deal, which is only really discovered after the fact, was pretty pleasing to see for all market participants,” added Chambers. “It’s a good result, especially for a market reopener.

The new issue is Nordea Bank Finland’s second euro benchmark of the year, following a Eu2bn dual tranche 5.25 year and 12 year deal in March.

Following Nordea’s market reopener, on Tuesday DNB Boligkreditt built a book of Eu1.8bn for a Eu1.25bn (Nkr11.5bn) five year covered bond priced at 15bp over mid-swaps in spite of competing supply and the deal’s ineligibility for CBPP3. (See accompanying article.)

“It was great to see that, as DNB proved, you don’t have to rely on CBPP3 to get transactions done, and if anything the higher absolute spread level on DNB’s issue seemed to be just as appealing if not more appealing than Nordea the day before,” said Chambers.

Although the two Nordic issues enjoyed the highest levels of oversubscription, bankers also cited high levels of demand as the highlight of some of the week’s other deals, including a Eu500m five year from Berlin Hyp that yesterday (Thursday) attracted orders of over Eu1.2bn.

“In the last couple of weeks transactions were being executed but with very limited levels of oversubscription,” said Chambers. “What is encouraging is that this week, even though premiums are still large in terms of averages over the course of the year, oversubscription and granularity levels seem to have picked up to more normal levels.

“That is allowing the benchmark market to begin functioning properly again.”

Syndicate officials noted that further supply is likely next week, with a number of issuers in the pipeline. Euro deals are expected from Eika Boligkreditt, Hypo Tirol, Raiffeisenbank a.s., and Banca Carige, all of which recently completed roadshows or investor calls. Deutsche Apotheker- und Ärztebank will also be the road, from Monday until 27 October, ahead of a potential benchmark issue.

“People have one eye on those pre-announced deals, and some of them are not necessarily the easiest credits,” said Chambers. “So investors are aware that there is supply to come, and therefore new issue premiums will likely stay elevated around current levels.

“But the good news for those issuers and others is that there does seem to be liquidity to put to work.”

Chambers noted, however, that most Nordic issuers are in blackout, with issuers from other jurisdictions also in or entering silent periods soon.

“This is one thing that could support spreads, by moderating the pace of supply and giving secondary levels a chance to tighten,” he said. “But the anticipated pipeline and some very visible events, including the Fed meeting at end of month, could offset this.

“So things are still in the balance.”