Sweden

The Swedish regulator’s proposal to lower the covered bond swap counterparty rating threshold to single A from double A is credit positive, said Moody’s on Monday. Though at odds with overall European covered bond rules in the Capital Requirements Regulation and Directive, the proposal would allow banks to continue receive preferential regulatory treatment on their covered bond investments.

The European Central Bank's covered bond purchase programme (CBPP3) turned relative value upside down this week, with a French deal pricing inside a similar Swedish offering, among a crop of four new issues.

Stadshypotek came to screens late on Monday morning to price the first Swedish covered bond after the opening of the European Central Bank’s third covered bond purchase programme. Although the central bank would not target Stadshypotek’s paper specifically as Sweden is not in the euro area, the programme has tightened spreads across the market.

Moody’s says the Swedish Bankers’ Association recommendation that new mortgage loans amortise down to 50% of property value, from 70% currently, will help to slow the increase in household debt and is credit positive for Swedish banks and their covered bonds.

The Swedish Covered Bond Corporation (SBAB) was set to issue a €1bn deal at a historically tight level of 1bp over mid-swaps on a comfortably oversubscribed book on Tuesday. Although the issuer has been out of the market for three years and is considered a solid credit, the deal lacked some of the sparkle of issues seen earlier this month, possibly due to its soft bullet structure.

HSH Nordbank and the Swedish Covered Bond Corporation (SCBC) mandated leads for euro benchmarks that are likely to be launched on Tuesday.

With a sizeable portfolio of variable rate mortgages, it makes sense for Stadshypotek to issue floating rate covered bonds, as this minimises interest rate risk and swap costs. Though the investor base for floating format covered bonds is still in its infancy, treatment of the asset class in bank liquidity buffers could soon be improved, and since FRNs are better suited for bank liquidity books, this is a market that could potentially deliver a substantial stream of demand.

Swedbank looks set to price the tightest non-German euro seven year benchmark covered bond in over five years, and with a negligible new issue premium. The transaction’s success drew on a confluence of positive factors.

The Swedish Financial Supervisory Authority (FI) announced on Thursday that it will introduce higher capital requirements for four major Swedish banks. It also intends to activate a countercyclical capital buffer and has said it will increase the risk weight of mortgages from 15% to 25%, in line with the Riskbank’s recommendation last year.

Credit sentiment is positive, and it seems unlikely that the European Central Bank would take anything other than an accommodative stance at next week’s policy meeting, but bankers are getting cautious that valuations are becoming overstretched, particularly in those markets which have until now been considered safe havens.

The Swedish Bankers Association has published a letter to the Basel Committee on Banking Supervision which says that the Net Stable Funding Ratio (NSFR) would cause banks to rely less on covered bond funding, and more on alternative sources which are not as stable.

Swedish lenders should set a 70% loan to value cap for interest only mortgages and loans higher than that should be on a repayment plan, the Swedish Bankers’ Association said on Wednesday. Investors welcomed the news but said it would have a marginal effect. The Riskbank's governor, Stefan Ingves, said on Wednesday that mortgage risk weights should rise.