Nordea Bank Finland placed the first Nordic benchmark of the year yesterday (Tuesday), a Eu1.25bn seven year deal inside its curve that bankers said showed strong demand for core names, with appetite for peripherals also surprisingly strong – albeit evidenced by senior supply.

Nordea Bank Finland

After having closely monitored the market in the first week of trading after the holiday break, Nordea decided to take advantage of a good market environment and the lack of covered bond supply to launch its new issue, according to an official at one of the leads.

Deutsche, HSBC, Nordea and Société Générale set IPTs in the high teens over mid-swaps, intending to offer investors a new issue concession of around 2bp taking into account a Nordea Bank Finland May 2019 trading at 15bp over mid-swaps and a February 2021 trading at 21bp over, he said.

However, as the order book reached Eu1.5bn in the first 30 minutes of trading, Nordea officially opened books at 17bp over, and further tightened the spread to 16bp over, pricing the new issue inside the interpolated secondary curve.

“The initial guidance was already punchy,” said a syndicate banker at one of the leads, “so we were expecting a print at least flat to secondaries”.

The banker said the new issue is trading at re-offer in the secondary market as the spread left little room for further tightening.

Some 115 accounts participated in the trade, with German and Austrian investors taking 58%, Nordics 17%, the UK 8%, France 7%, Asia and the Middle East 5%, the Benelux 2%, and other Europe 3%. Banks were allocated 48%, fund managers 23%, central banks 14%, insurance companies and pension funds 14%, and private banks 1%.

Nordea’s deal cropped up in a market dominated by a “game of senior unsecured”, said a syndicate banker away from the leads, especially from the peripherals, “with all the crises seeming far away from them”.

Banco Popular Español, for example, yesterday launched a Eu750m 2.5 year senior unsecured bond rated Ba1 that gathered more than Eu1.3bn of orders, according to a syndicate banker at one of the leads.

The launch of a sub-investment grade unsecured transaction from a peripheral issuer showed that the market has a strength that was difficult to forecast at the end of last year, said market participants.

“Who would have thought on 8 January we would already see the first non-IG senior unsecured deal from Spain?” said one.

Some market participants suggested that after the positive outcome of a BBVA senior unsecured deal last week and Banco Popular Español yesterday other peripheral issuers may opt for unsecured borrowing to save on collateral, and the possibility of a much rumoured Portuguese comeback could fade away.

“The Portuguese are evaluating the situation,” said a syndicate banker. “But I still expect the national champion of Portugal to come soon, in the richest format ever.”

He added that despite the positive investor response to senior unsecured transactions, the market is also open for the tighter secured end of the spectrum, as shown by Nordea’s deal.

The “usual suspects” in core jurisdictions such as France and Germany may therefore be hitting the market soon, envisaging the possibility of their already tight spreads tightening even further.

Meanwhile, in the US Commonwealth Bank of Australia announced that it plans to sell a dollar benchmark covered bond in the near future (see separate article).