Sweden

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.

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.

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.

As a proxy for national mortgage markets, LBBW research has taken a closer look European mortgage pool statistics and macro-economic housing market trends. Controversially, it finds that Spanish NPLs have halved in the last two years. In contrast Scandinavia, which is stereotyped as safer than safe, could be heading for trouble as house prices reach 30-year highs.

Sweden’s Länsförsäkringar Hypotek (LF Hypotek) has finished roadshowing and will come to market early next week. After a successful euro covered bond debut in March last year, the borrower should benefit from some market familiarity and heightened demand for core paper.

Though the covered market was quiet on Friday, market participants can look back on highly successful week in which almost Eu7bn in euro benchmarks was issued. After faltering supply in April UniCredit analysts report that covered bonds are on track for another record month. Issuance thus far in May is almost Eu20bn, less than Eu2bn short of the record total supply for that month.

On Thursday, Nordea took advantage of the flight to quality bid, scarcity of short end Scandinavian supply and sizeable bank treasury and central bank interest to launch and price a Eu2bn three year covered bond backed by Finnish prime residential mortgages. Timing and choice of lead played an important role in attracting top quality Asian demand.

Scandanvian borrowers have joined their French and German core colleagues to take advantage of a market highly receptive to quality issuance. SpareBank 1 Boligkredit tapped the dollar space on Tuesday, while Nordea Bank Finland priced a well oversubscribed three year euro trade on Thursday. Aktia real estate mortgage bank has mandated banks for a series of investor meetings beginning in early June.

Bayerische Landesbank began taking indications of interest for a benchmark public sector Pfandbrief, expected to be priced on Thursday, which could end the mysterious drought in the covered market.

Secondary trading has paused for breath lately, but there are still good pockets of liquidity and interest – specifically for French, UK and to a lesser extent Dutch and Scandinavian deals. The primary market could be due another slow week though a French deal is highly likely, with Société Générale tipped as a probable candidate. UK issuers are looking at the dollar market but there is speculation that one is looking at sterling.

Stadshypotek priced the tightest Swedish covered bond deal of the year on Wednesday, and the tightest non-Pfandbrief trade of 2011. The Eu1.5bn print was increased from the planned Eu1bn on the back of strong central bank participation, and an order book of Eu1.8bn.

Sweden’s Stadshypotek has priced a comfortably oversubscribed, upsized trade. Though in line with initial guidance, the plus 32bp print seemed ambitious. Nevertheless, the price and size clearly worked, proving that cash rich buyers are eager to digest fresh supply from top tier, rare names in core jurisdictions – something that Stadshypotek was well placed to take advantage of.