Nordics

The year’s first batch of covered bond issues have been easily absorbed by a wide range of investors producing comfortably oversubscribed books. The first peripheral deal mandate has come from Portugal and another from Spain is expected shortly.

Four issuers from Finland, France, Australia and the UK are set to price covered bonds on Tuesday and Wednesday. Market conditions are broadly constructive, especially for higher yielding names, said bankers, but core issuers might have to offer concessions to tempt investors in a busy start to the year.

Average spreads for Danish covered bond auctions, which finished on Wednesday, hit record lows, Danske Bank research said on Thursday. The auctions were heavily influenced by the government’s amended proposal to extend the maturity of bonds from next year.

The Danish government's call for a mandatory maturity extension on covered bonds would greatly reduce liquidity risk, but raises questions about its implementation, Fitch said on Wednesday.

Sweden's finance minister, Anders Borg may want the country's banks to rely less upon the covered bond market and more upon growing their own deposit bases, but if Swedish banks were to abandon a market that has served them so well for so long, it could do more harm than good.

Commerzbank has returned for its fourth covered bond deal of the year, and the second off its new mortgage platform. It announced the €500m no grow deal on Monday, ahead of Abbey National Treasury Services launching its own deal (see other story).

There is an even chance that two deals could surface from Europe’s core and periphery next week, bankers said on Friday, but potential issuers have been perturbed by the performance of this week’s two deals, both of which have softened slightly. However, in both cases there were specific factors at work that are unlikely to impinge on prospective deals where there is high confidence of a strong reception.

Sparebank 1 Boligkreditt struggled to get investor traction on Tuesday morning for its €1bn long six year benchmark. The weak demand was in sharp contrast to last week’s €1.5bn five year bond from DNB Boligkreditt, with bankers away from the deal suggesting the long six year maturity may have been slightly too long for asset managers looking to shorten duration.

Swedish finance minister, Anders Borg’s call for the country’s banks to reduce their reliance on covered bonds to fund mortgages has not won support among bankers, who questioned the need to tinker with a funding mix that has served Swedish banks so well.

After a spate of seven year deals from Scandinavian banks, Norway’s DNB Boligkreditt was set to price a €1.5bn five year on Tuesday. This will sit well with investors’ year-end liquidity constraints, said bankers.

The new Norwegian government’s pre-election pledge to ease mortgage lending standards would be credit negative, Moody’s said on Monday. Norwegian households are already highly indebted, house prices are overvalued and inflating the credit bubble further could result in a failure to repay high LTV mortgage loans under stressed market conditions, it said.

SEB returned to the covered bond market on Monday to issue its second seven year euro benchmark of the year and the second from a Swedish bank in less than a week. Though SEB was unable to match the cheap funding in Stadshypotek’s recent deal, it was placed with more real money investors.