Nordics

Issuers are waiting for some better news out of Greece before deciding whether to press on with transactions, despite most receiving strong interest during roadshows. After selling in the secondary market on Thursday, sovereign spreads on Friday tightened on rumours of an aid package for Greece. But with market sentiment yo-yoing from one day to the next, any window for issuance before the summer lull is likely to be narrow, and perhaps too risky for first time euro borrowers such as ANZ Bank.

Two Danish issuers completed auctions of mortgage backed covered bonds to refinance adjustable rate mortgage (ARM) loans this week. Nordea Kredit Realkreditaktieselskab sold DKK11bn on Wednesday, and Realkredit Danmark on Thursday auctioned Eu680m of one year bonds.

Covered bond analysts have turned their attention to rising house prices in Scandinavia, following a report by Standard & Poor’s, which warned that rising private sector debt to GDP levels, fuelled by increased mortgage borrowing, could present a danger to banks and their assets in the event of a severe economic downturn.

There were few indications that a success was on the cards, given that Sampo’s Eu1bn ten year struggled and that market volatility had scared off other issuance this week but Aktia Real Estate Mortgage Bank’s Eu500m five year trade on Wednesday attracted enough investor interest to warrant an increase.

Aktia Real Estate Mortgage Bank defied difficult market conditions on Wednesday to build a twice covered book for an intended Eu500m five year trade, which allowed the borrower to increased the deal size to Eu600m. The result stands in contrast with fellow Finnish issuer Sampo Housing Loan Bank, which found the going much tougher on Tuesday for its Eu1bn ten year trade.

Sampo Housing Loan Bank sold a Eu1bn 10 year transaction on Tuesday, which despite high credit and cover pool quality priced at the wide end of guidance. Syndicate officials pointed to a rise in rates and general aversion to risk among investors as two factors that held the transaction back.

Finnish issuers Sampo Housing Loan Bank and Aktia Real Estate Mortgage Bank came to market on Tuesday. Aktia began taking indications of interest on its Eu500m five year trade following Sampo opening books on a 10 year deal, which will be priced later today.

Demand from insurance companies and pension funds for covered bonds has increased this year, according to Barclays research, while interest from central banks and asset managers has fallen. Germany and Austria are the only regions where overall investor interest for covered bonds has decreased noticeably, though in some jurisdictions investors have participated far less in issuance from certain countries.

Moody’s increased the refinancing margins and lowered the timely payment indicators (TPI) from very high to high on 12 Danish covered bond programmes on Friday, following a rise in adjustable-rate mortgage loans (ARM) in Danish cover pools.

Borrowers from peripheral and core jurisdictions priced over Eu6bn worth of benchmark covered bonds across three currencies this week, which included inaugural deals from Italian and New Zealand issuers. Prospects for supply next week are similarly diverse, though volatility and European holidays may narrow the window for issuance.

Dealers report a strong bid in covered bonds this Wednesday morning, though some selling in the five to 10 year segment was welcomed as it helped cover shorts. Dexia Municipal Agency remains under pressure and with Bonos tightening, cédulas have underperformed, triggering some selling.

Länsförsäkringar Hypotek priced a Eu1bn no grow three year Swedish covered bond and DnB Nor priced a Eu1.5bn 10-year. Both deals benefitted from a safe haven bid ensuring a warm investor response.