Norway’s SpareBank 1 Boligkreditt is issuing the first benchmark covered bond to reach at least Eu1bn for over a month today (Tuesday) after having received Eu1.7bn of orders for a five year, despite the market continuing in risk-off mode. Hungary’s OTP priced a Eu750m FRN yesterday.

“Today is scarier than any other day,” said a syndicate official, “Finland and the Netherlands are trading wider, and France is getting smashed with about a 30bp-40bp widening.

“It’s very scary right now, which is why the SpareBank 1 trade is a safe haven trade; this is where investors are putting their cash right now.”

The SpareBank 1 transaction was announced yesterday (Monday) afternoon, with leads Barclays Capital, BNP Paribas, Commerzbank and HSBC opening books this morning and collecting Eu1.7bn of orders within a short time period for the deal, which was capped at Eu1bn. The order books were closed at 1120 CET and pricing is scheduled for later today.

The re-offer spread was fixed at 63bp over mid-swaps, the tight end of guidance of 63bp-65bp over, which followed initial price thoughts of the 65bp over area.

A fund manager said that the pricing offered a new issue premium of around 10bp, which he said was not much but about average for the market. He said it was clear that Nordic covered bond issuers are benefitting from negative sentiment surrounding the euro-zone, and that while house price developments in Norway could be seen as a possible negative these were not in focus. The spread pick-up was OK, he said, enough to attract more than sufficient demand, with the order books building quickly.

Syndicate officials away from the leads said the deal went well, with one noting that this was in spite of challenging market conditions.

Another said that while the deal was positive it did not signal a broader reopening of the market, with Nordic, Dutch and German issuers the main ones to have access.

Münchener Hypothekenbank was mentioned as a possible new issue candidate, with a short dated deal expected if the bank proceeds, according to a syndicate official. The challenge facing German Pfandbrief banks, he said, is not one of credit quality but that in the prevailing low yield environment they struggle to offer spreads that will attract investors. An issuer such as Münchener Hypothekenbank will have to consider what spread concession it would be willing to make without damaging its curve, he added.

A syndicate banker on SpareBank 1’s covered bond said that the leads were cautious in announcing the transaction yesterday afternoon and that high quality orders and orders from momentum buyers were placed during bookbuilding this morning.

However, he said the market feels very risk averse, with government bonds being hit hard.

“There’s been a consistent slide since the Italian auction yesterday,” he said.

He put SpareBank 1’s new issue premium at 5bp, in line with what was included in the re-offer spread of 58bp over for a Eu2bn five year DnB Nor Boligkreditt issue from 11 October.

“We are very happy to get it done,” he said. “The market needs this kind of primary supply from this jurisdiction.”

A syndicate official away from the deal said it provided further evidence of the safe haven bid for Nordic covered bonds.

Hungary’s OTP Mortgage Bank priced its Eu750m two year covered bond at 525bp over Euribor. A syndicate official at Citi, sole manager on the deal, said the transaction was just subscribed, and that the bank considered this satisfactory.

He said that the level at which the sovereign was trading was taken into account in the pricing of OTP.

“That’s more or less where we came from, but it’s been pretty volatile,” said the syndicate official.

Hungarian covered bonds have been under scrutiny since a law was passed in September giving foreign currency mortgage borrowers the option to repay their loans at a discounted exchange rate. However, the syndicate official said that this was not a factor in the new issue.

“We had some confidence about execution before we went ahead,” he added, “based on demand we were aware of. We knew that when we went out with it we could get this deal done.”

OTP Mortgage Bank did investor work in June in Austria, Germany, the Netherlands and the UK.

The ECB today reported Eu17m of settled purchases under the second covered bond purchase programme (CBPP2), a Eu6m increase from the figure disclosed yesterday.

Please see the right hand column of the homepage and news pages for a widget tracking the ECB’s disclosure of CBPP2 buying.