Nordics

Hard work rather than a change in terminology led to the surge in interest for Nykredit Realkredit’s latest senior secured deal, an official at the issuer told The Cover on Tuesday. Almost 140 accounts produced its biggest order book yet for a senior secured deal.

Nykredit Realkredit launched a euro benchmark junior covered bond on Monday after marketing the deal as a senior secured transaction. This approach helped draw traditional covered bond buyers and credit accounts into the deal, which was priced at half the spread and with twice the orders that its last outing in the rare asset class achieved.

Covered bond issuers decided against bringing benchmark bonds on Friday despite a better backdrop, but there are several potential deals in the pipeline and stronger sentiment should encourage issuers looking to come next week, said bankers.

Nykredit announced a benchmark junior covered bond mandate on Wednesday, just a day after Standard & Poor’s warned that Danish covered bond ratings could become increasingly reliant on the junior asset class.

Covered bond syndicate officials are predicting as many as five deals will be launched next week following a wave of successful core transactions.

The quiet period for FIG ended this week with a handful of deals emerging in the covered bond and senior unsecured markets. And in contrast to several tightly priced core European deals seen earlier this year, in which investors had pushed back on terms seen as too aggressive, bankers are now reporting a shift in sentiment.

Net euro denominated covered bond supply has dropped to the lowest level since the euro begun. And with a surfeit of central bank liquidity alongside continued balance sheet shrinkage, this trend looks set to continue, suggesting that the already measly supply forecasts for the year could be revised lower.

Interest only mortgage loans could destabilise an already stressed Danish housing market, Standard & Poor’s said on Monday.

UBS and Swedbank closed dollar benchmarks this week, pricing their deals well inside where they could have funded in euros. Demand in the dollar market far outstrips supply, and the eager investor base should help draw more borrowers looking to take advantage of the arbitrage.

UBS and Swedbank announced dollar benchmarks on Thursday, opting for the safety and favourable cross currency swap available in that market.

Core and peripheral borrowers are waiting for a better market before bringing benchmark covered bonds. Safe-haven names are traditionally first to take advantage of returning stability. But southern European borrowers, which offer higher yields, juicers spreads and are less flexible over pricing, will find execution easier, said bankers.

Covered bonds should be exempt from the proposed European financial transaction tax, the Association of Danish Mortgage Banks (Realkreditrådet) has said, as it could raise mortgage costs in Denmark and hurt liquidity across bond markets.