Sampo Bank priced a Eu1bn seven year covered bond yesterday (Thursday) after drawing Eu1.8bn of demand from 114 investors, although syndicate bankers said that demand for core names was easing at the tight levels they have reached.

The Finnish issue was priced at 37bp over mid-swaps after leads Barclays, Credit Suisse, Danske, Natixis and Société Générale had gone out with guidance of the 38bp over area.

Some bankers away from the leads had suggested that this represented a new issue premium of 5bp-7bp, and was generous versus Nordea’s Finnish covered bonds, for example.

However, a syndicate official at Danske Bank, Sampo’s parent, said that according to the leads’ calculations the deal was priced flat to the bid side of the interpolated seven year point on the issuer’s curve.

He said that the leads looked at mid prices given the variation in the breadth of bid/offer spreads in the market, with Sampo’s 2016s seen at 21bp mid and its 2021s at 42bp mid, meaning that a theoretical seven year would be at 36bp-37bp mid. With Danske quoting Sampo in the secondary market at 4bp-5bp bid/offer spreads for tickets of at least Eu10m, this put the theoretical bid level at around 38bp. The syndicate official acknowledged that some market participants might look more towards the offer side, but pointed out that the deal was today (Friday) quoted at 38bp/34bp, with tickets having been traded at 35bp-36bp.

“So we priced the deal in line with secondary,” he said, “and allowing for a little performance.”

The extent of any new issue premium paid by Sampo was seen considered of interest partly because core issuers are contemplating what levels they might have to pay in today’s market, said covered bond bankers.

One said that while some issuers expect to pay no new issue premium or even price through their curves, as was achieved by some a few weeks ago, some weakness in core names meant that this was not necessarily achievable anymore.

“There is some selling bias in core names,” he said. “I’m not sure whether this is because we went too tight too quickly and spreads are now too thin, or because people are more comfortable looking at the peripherals and other asset classes such as senior unsecured – it’s probably a combination of factors.

“But certainly the big safe haven bid we saw post-summer isn’t there anymore.”

Another banker echoed this when looking at how covered bonds traded this week.

“In contrast to the cheapest bonds that were well bid,” he said, “the more expensive covered bonds were better offered. It’s not clear if this was just profit-taking or the sell-off of Bunds.

“The five year swap spread is now 35bp, half what it was in mid-July. The more ‘core’ the covered bond, the higher the inverse correlation to swap spreads, i.e. they tend to behave as part Bund spread/part swap spread.”

One syndicate official said that with core deals achieving more pedestrian execution, southern Europe could come back into focus after a quiet week.

“I guess the focus will remain on higher beta names and the peripherals,” he said. “Investors will seek to put more money to work in the compression trade.”

However, Nordic issuers are said to be still considering issuing, even if there is little arbitrage in coming to euros, with issuance said to be possible next week.

Meanwhile Sampo also bucked a recent trend of going out with initial price thoughts and then revising price talk downwards. The Danske syndicate official said that the issuer instead spent an extra day preparing the deal and speaking to investors, especially given that it was a year since Sampo last issued and general “noise” around the Danske name and Moody’s rating actions on Danish banks in particular. He added that some bank treasuries need time to get lines to extend beyond five to seven years and that the extra preparation allowed them to do this.

He said that distribution of the bonds was balanced.

“The wide acceptability and recognition of the issuer was evident in the well-spread distribution of the bonds by both jurisdictions and types of investors,” he said.

Germany/Austria and Nordic accounts were each allocated 29% of the issue,  the UK/Ireland 17%, France 8%, Switzerland 5%, the Benelux 4%, other Europe 4%, and others 4%. Asset managers took 36%, banks 32%, central banks and agencies 17%, pension funds and insurance companies 13%, and others 2%.