Nordics

Bayerische Landesbank (Bayern LB) launched its first euro benchmark covered bond in over a year on Wednesday, bringing a 10 year public sector backed Pfandbrief originally mandated in July 2011. The trade prioritised pricing over size and received less interest than recent German deals. At the less traditional end of the covered spectrum, Nykredit Realkredit opened books on a tap of a recently issued junior covered bond.

The senior market took centre stage again on Tuesday, dissuading covered issuers from competing with another trio of unsecured trades after Westpac’s slow bookbuild on Monday. The Australian issuer closed the spread gap with its Nordic peers, but found demand lacklustre compared with earlier Australian benchmarks.

Swedish banks head a group of possible covered bond issuers, despite resurgent volatility. The Swedes have largely stayed away from the euro market so far this year, opting instead to rely on domestic demand. But analysts still expect the need for diversification and name recognition among Swedish banks to yield euro benchmarks.

Terra Boligkreditt launched its largest ever covered bond this week and, with increasing redemptions and a growing mortgage book it could soon become an issuer of jumbo deals, its chief executive told The Cover. In addition, a new ownership structure will provide liquidity and capital support, and is expected to lead to rating uplift.

Terra Boligkreditt followed Nordic peer DNB Boligkreditt with a seven year benchmark on Tuesday. Boasting a new ownership structure and collateral of exemplary quality, Terra priced a well received trade inside its outstanding curve.

Demand for safe-haven high quality paper played an important role in drawing DNB Boligkreditt to market this week. The borrower sold a successful €1.5bn trade, though it told The Cover it had not intended to launch a deal.

DNB Boligkreditt got the covered bond market off to a flying start on Monday with a €1.5bn seven year benchmark deal. Norwegian peer Terra Boligkreditt has readied its own euro trade and could launch on Tuesday, while two German issuers have mandated for five year mortgage Pfandbriefe.

Nykredit Realkredit will price a €500m five year junior covered bond at 200bp on Wednesday afternoon. The deal came far closer to senior than covered bond levels, with demand mainly from credit buyers in Nordic regions more familiar with the unusual structure.

Finland’s OP Mortgage Bank shrugged off an appalling market backdrop to launch an exceptionally well received €1.25bn deal on Wednesday. Its first covered bond of 2012 provided solid proof of the covered market’s resilience to macro concerns and added weight to syndicate bankers’ arguments that issuers should take advantage of demand overhang.

Borrowers could decide to switch senior projects into covered trades, syndicate bankers told The Cover. This would follow the example Nordea set in April when it turned a planned senior deal into a blow out seven year covered deal.

Länsförsäkringar Hypotek became the first Nordic issuer to tap the Swiss franc market in covered bond format this year when it priced a Sfr175m seven year note on Thursday. However, with pricing still not meeting larger Nordic financials’ targets, market participants do not expect a flurry of covered bond supply out of the region to follow.

Despite the holiday shortened week, activity in the secondary covered bond market has been relatively good. Though not all houses attest to seeing flows, some banks have seen quite a lot. German and Scandinavian markets are very well supported, the UK has performed very well, France is mixed and Spain is offered.