Sparebanken Vest Boligkreditt will price the tightest Norwegian euro benchmark of the year after what was said to have been a smooth execution process this (Tuesday) morning. Austria’s Erste will soon launch what will be the first deal from a euro-zone issuer in more than two weeks.

Erste Group Bank has mandated Barclays Capital, Crédit Agricole, Erste Bank and UniCredit to lead manage a new euro issue.

The leads are taking IoIs for a 10 year mortgage-backed deal at the 130bp-135bp over mid-swaps area. A syndicate banker away from the deal said that such a transaction should go well, citing positive market conditions and what “feels like a relatively cheap” level.

A deal from Erste Group Bank would be the first new euro benchmark from a euro-zone issuer since 11 January, when the Netherlands’ ABN Amro sold a Eu1bn 10 year deal, although there have been taps by euro-zone issuers since then. However, a syndicate official played down the focus on this given that other euro-area supply that hit the market earlier this month.

The Austrian banking group on 9 December said that it requires around Eu3bn of long term funding in 2012 and that this will include an increased reliance on covered bond funding, with a growth in its cover pools giving it the ability to do this. The group said in a presentation that its cover pool availability in 2012 stands at Eu3bn, and that it has no need to issue wholesale senior unsecured benchmarks.

According to research since published by Morgan Stanley, Erste Bank is understood to have borrowed Eu2.8bn from the ECB via its three year LTRO.

Leads Commerzbank, DZ Bank, ING and Nordea will this afternoon price a Eu500m long five year issue for Sparebanken Vest Boligkreditt at 66bp over mid-swaps, the tight end of guidance of the 68bp over area (defined as plus/minus 2bp). This followed initial price thoughts of the 70bp over area on the basis of which the leads took indications of interest yesterday (Monday) afternoon.

The April 2017 deal was capped at Eu500m from the outset, and more than Eu1bn of order had been placed before the order books were due to close at 1015 CET.

At 66bp over, Sparebanken Vest’s deal will price the tightest Norwegian euro benchmark this year, coming after a Eu1.25bn seven year for SpareBank 1 Boligkreditt at 77bp over last Tuesday (24 January), a Eu500m five year for Terra BoligKreditt that was re-offered at 73bp over on 18 January, and a Eu2bn five year DNB Boligkreditt deal that came at 68bp over on 4 January.

A syndicate banker away from the leads said that spreads have tightened considerably since the beginning of the year, and that he had traded DNB five year paper at 56bp over last week.

“We’ve moved significantly tighter than the 68bp pricing,” he said, adding that a spread of 66bp over for Sparebanken Vest’s deal still offered value.

A banker away from the leads added that the pricing was very fair, while not being too generous to investors.

“We lack supply in the primary market,” he said, “so, with everything else, this is supporting deals.”

A DCM banker said that he expects benchmark supply to resume, possibly as early as this week, with issuers coming out of blackout periods. Santander today reported results for the fourth quarter of 2011, and the banker said that he thinks it is “highly likely” that one of the top Spanish banks will tap the public wholesale funding markets, albeit probably with a senior unsecured transaction rather than a covered bond.

Syndicate bankers said that market conditions remain positive, despite uncertainty about the Greek situation. One said that the impact of the ECB’s long term repo operations (LTROs) had been underestimated, and that spreads have come “screaming in”.

He said that supply volumes could be disappointing this year, with the availability of cheap funding via the LTROs removing the incentive to tap the public markets. The ECB is offering euro-zone banks another opportunity to obtain funding for three years at a rate of 1% via a second LTRO, to be held on 28 February.

“Why wouldn’t you go for it?” asked the syndicate official. “You’d be mad not to.”