Banks keep up brisk pace in euro covered bonds
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Banks keep up brisk pace in euro covered bonds


After a rough 2023 when Nordic banks were forced to issue covered bonds at shorter tenors, borrowers have relished the chance to fund further out on the curve so far this year, securing tightly priced and popular deals, writes Frank Jackman

Nordic banks have issued €12.25bn of benchmark covered bonds in euros during the first half of this year, according to data from GlobalCapital’s Primary Market Monitor, putting them on track to match the €20bn raised last year.

Of course, 2023 was not an easy year for covered bond funding — March’s regional banking crisis in the US and the collapse of Credit Suisse shuttered the covered bond market for two weeks during what should have been the end of a busy first quarter.

But covered issuance returned strongly at the end of March. In fact, it was a Swedish borrower — Stadshypotek — which reopened the European covered bond market. The Swedish firm attracted a €2.25bn final book as it sealed a €1bn 3.125% April 2028 green bond, its first in the format, at a spread of just 16bp over mid-swaps. A strong second quarter followed as Nordic banks scooped €7.25bn of benchmark paper out of the market — €2.5bn more than the second busiest quarter.

This year, however, supply has progressed at a steadier pace in the absence of a market-wrecking black swan event. Nordic banks issued €5.5bn in the first three months of 2024, before raising €6.75bn in the second quarter, PMM data shows.

Thankfully, this steady pace has kept up with last year, with the €12.25bn raised in the first half just €500m more than what was issued during the same period last year. And as a result, Nordic banks have avoided the volatility that racked the market following French president Emmanuel Macron’s decision in early June to hold a snap election.

Nordic bank treasurers can go into the midsummer period happy that not only are their coffers full, but also they have extended duration and funded at attractive levels.

After being forced to fund at the short end of the curve in 2023, Nordic banks have leapt at the chance to extend their duration in 2024. Last year, Nordic banks funded at an average tenor of 5.12 years, rising to 6.28 years in the first half of 2024. Seven years is the most popular tenor for Nordic issuance so far this year, with €4bn worth of deals printed, up from €2.5bn throughout the whole of 2023, GlobalCapital data shows.

Benchmark euro new issues by tenor

2023 H1 2024

Source: GlobalCapital’s Primary Market Monitor

Not only are Nordic banks able to fund further down the curve, but they have found themselves coming very close to, or even through, secondary levels this year.

Last year for instance, Norwegian banks paid on average 4.7bp of concession, but that has fallen to minus 0.25bp this year. In fact, Eika Boligkreditt’s €500m 2.875% March 2029 note, sold on March 12, paid the smallest concession for a European deal so far this year, PMM data shows. The five year bond landed at 28bp over mid-swaps — 4bp inside fair value. And despite the tight level, accounts still showed a willingness to invest as they poured €3.4bn of orders into the book at the final terms.

Of course, these smaller premiums are being paid on wider spreads. Eurozone spreads inched wider throughout the latter half of 2023 before showing signs that they might tighten again late in the second quarter this year.

The average spread for a fixed rate Nordic deal rose from 17.3bp in the first quarter last year to 41.3bp in the final quarter. However, this latter spread is elevated slightly thanks to the wide 90bp spread paid by Danish Ship Finance for its €500m 4.375% October 2026 ship covered bond in October. Omitting this deal brings the average spread down to 33.2bp — a level that is still close to twice what was paid in the first quarter, according to PMM data.

New issue spreads have stabilised in 2024, remaining at 32.8bp and 32.1bp in the first and second quarters, respectively.

These elevated levels, however, do represent an excellent entry point for investors looking to lock in high spreads and high yields ahead of further eurozone rate cuts later this year. This played out in higher average orderbook subscription ratios across the Nordic region. Nordic covered bonds were on average 1.7 times subscribed in 2023, rising to 3.3 times in the first quarter 2024 before falling slightly to 2.7 times in the second quarter.

Average Nordic euro covered spread to mid-swaps

Source: GlobalCapital's Primary Market Monitor

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