Nordics

Denmark’s Nykredit Realkredit will launch a new mortgage funding model this quarter, in an attempt to lower its covered bond issuance costs in an environment of falling house prices.

The European covered bond market is stabilising on Friday, with buyers reported in French and Scandinavian names. But the Spanish market remains shaky, and though selective bids returned the macro sovereign backdrop deteriorated after Thursday's brief impovement.

Spread tightening has stalled after the first quarter rally, according to DZ analysts, who urged investors to reposition themselves in preparation for spread widening. But with many investors still on holiday, the secondary market has become easier to move with smaller tickets, and traders said it was too early to draw conclusions from an increase in selling.

Sovereign markets have started to stabilise but covered bonds have lagged this move and remain under pressure in the secondary market. The focus has been on Spain but dealers also reported weakness in French covered bonds. In the primary market, issuance hopes remain dim, though bankers think there may be room for a Swedish or Finnish deal.

Axa Bank Europe SCF launched its third and largest euro benchmark covered bond on Tuesday, pricing a €1bn trade at the tight end of guidance. Investors seemed untroubled by the rare RMBS collateral, allowing Axa to follow recent French trades in offering a minimal new issue concession.

The covered bond market is primed for supply, with syndicate bankers expecting several trades this week and at least one announcement to hit screens this Monday afternoon. Though mandates are otherwise scarce, the range of products and currencies available to issuers means they can afford to launch at short notice, and keep their options open.

Norway’s Sparebank 1 Boligkreditt became the third European issuer to bring a five year dollar deal in the last two weeks, with all three deals offering the same spread. Also in North America, the Canadian government released its 2012 budget, though details of prospective covered bond legislation remain scarce.

Danske Bank sold a Skr3bn (€340m) five year deal at 115bp over mid-swaps on Thursday, its first benchmark trade in the currency.

Top tier names can offer zero premiums on primary trades but lower ranked issuers have no such luxury, syndicate officials told The Cover on Monday.

Stadshypotek built the largest ever order book for a Nordic covered bond on Wednesday, with the year’s first euro benchmark from a Swedish issuer.

DNB Boligkreditt showed that, for the right name from the right jurisdiction, yield hungry investors will make concessions to get exposure. The strength of interest for its latest 10 year offering allowed it to push both spread and size, and still leave appetite unsated.

DNB Boligkreditt and Leeds Building Society took advantage of very buoyant conditions to launch €2bn 10 year and £250m three year trades respectively. But, with the spread to senior unsecured continuing to tighten, the incentive to issue covered bonds is becoming less clear-cut for higher yielding credits.