Sweden

Swedish finance minister, Anders Borg’s call for the country’s banks to reduce their reliance on covered bonds to fund mortgages has not won support among bankers, who questioned the need to tinker with a funding mix that has served Swedish banks so well.

SEB returned to the covered bond market on Monday to issue its second seven year euro benchmark of the year and the second from a Swedish bank in less than a week. Though SEB was unable to match the cheap funding in Stadshypotek’s recent deal, it was placed with more real money investors.

After emerging from blackout on Tuesday, Stadshypotek returned to the covered bond market on Wednesday, mandating joint leads for a euro benchmark. Despite pricing at the tightest seven year Scandinavian deal since 2006, the borrower attracted robust demand, in an exercise that, once again, highlighted just how undersupplied the covered bond market has become.

Moody's has given a triple-A rating to the Norwegian mortgage covered bonds issued by Sweden’s Skandiabanken, which has an A3 issuer credit rating.

Sweden’s central bank highlighted the refinancing risk between the duration of assets and covered bond liabilities in a financial stability report this week. It is also concerned about the high proportion of bonds that banks are holding for liquidity purposes. Analysts welcomed the report and the bank’s pre-emptive and prudent approach.

Landshypotek closed books on its second largest Swedish krona covered bond ever on Tuesday, with leads expected to price Skr4.1bn (€471.8m) of five year fixed and floating rate paper later on Tuesday afternoon.

Cover pool encumbrance was steady last year versus the previous year, Fitch said on Thursday. The most stable levels were among the most encumbered institutions, where covered bonds have made up a large share of their financing for a long time.

Despite a UK holiday syndicate bankers are not ruling out deals on Monday, and there are still borrowers eager to execute bonds in run up to summer, they said.

Länsförsäkringar Hypotek (LF Hyp) plans to issue smaller, but more, regular covered bond deals. Speaking to The Cover on Tuesday, vice executive president and head of treasury, Martin Rydin, said that due to growth in deposits and senior unsecured funding, covered bond funding will account for a smaller proportion of the bank’s overall need.

Sweden’s Länsförsäkringar Hypotek returned to covered bonds on Monday, after almost two years away from the market. Its rarity and top quality collateral ensured conclusive investor endorsement, despite competing Spanish supply.

Swedbank Hypotek wasted little time in moving from blackout to benchmark this week, and launched its first euro jumbo covered bond since 2011 on Thursday. Other Nordics are emerging from reporting periods and at least one also has an eye on a euro transaction, said bankers.

Net euro denominated covered bond supply has dropped to the lowest level since the euro begun. And with a surfeit of central bank liquidity alongside continued balance sheet shrinkage, this trend looks set to continue, suggesting that the already measly supply forecasts for the year could be revised lower.