Norway

Sweden’s Stadshypotek on Thursday became only the fourth issuer to launch a benchmark Kangaroo covered bond. Despite an explosion of domestic supply this year the global appetite for Australian dollars remains strong, which bodes well for other Nordic issuers looking at inaugural trades.

This week’s two covered bond deals have helped increased activity in secondary markets, traders told The Cover. There has been selling pressure in the senior unsecured but this has only translated to more mixed flow in covered bonds.

Sparebank 1 Boligkreditt sold its third covered bond benchmark of the year this week. It has launched trades in euros, dollars, Norwegian kroner, and is monitoring the growing sterling and Australian dollar markets, chief executive Arve Austestad told The Cover.

Sparebank 1 Boligkreditt on Monday returned to the euro market for the first time since January. The rare borrower priced a five 1/2 year benchmark many times cheaper than where it sold a longer trade at the start of the year, exemplifying the sustained tightening in core covered spreads.

The covered bond market is gearing up to restart next week, said syndicate bankers, who expect at least two benchmark trades to hit the screens. German and Scandinavian borrowers are tipped as the most likely candidates to take advantage of squeezed secondary levels. But with no end to spread contraction in sight, the urge to wait and watch levels grind tighter could cause some borrowers to hold off.

The stressed cover pool losses of Australia’s covered bonds are worse than those in core Europe, Moody’s first performance overview of the jurisdiction revealed on Tuesday. However, Australia still boasts highly rated issuers and impressive collateral scores.

Secondary covered bonds spreads are grinding tighter as buyers faced with negative yields in the sovereign market drive short dated covered yields towards zero. While core jurisdictions wallow in a sea of demand, investors are still averse to peripheral paper, but the wide spread gap could cause Spanish and Italian spreads to bounce back, said bankers.

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.

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.