Stadshypotek has opened order books on a long five year euro benchmark covered bond at guidance some 5bp wider than where initial price thoughts were set due to investor resistance, with a banker at the leads citing a risk-on backdrop and competing, higher yielding supply.

Stadshypotek parent Svenska Handelsbanken, Stockholm

The deal is the Swedish issuer’s first euro covered bond after a year’s absence.

Leads Danske Bank, Deutsche Bank, Société Générale and Svenska Handelsbanken set initial price thoughts in the high single-digits this (Tuesday) morning, but then released guidance of the 15bp over mid-swaps area. Books were still open as The Covered Bond Report went to press, although orders at the 15bp area were in excess of Eu1bn, with many accounts still to revert, according to a banker at one of the leads.

He said that initial price thoughts were set at a level that was roughly flat to the issuer’s secondary market levels, and that this seemed fair given that many recent transactions had been priced in this way, but that there was resistance from investors to this, with guidance of the 15bp over area incorporating a new issue premium of around 5bp.

A syndicate banker away from the leads had said that the initial price thoughts were at some of “the tightest levels” for a Swedish issuer since the onset of the financial crisis. He added that that the pricing was really tight, but noted that this was in line with Stadshypotek outstanding issues, citing a March 2017 trading flat to mid-swaps this morning.

Another syndicate banker away from the leads had said that the deal would mostly attract “quality oriented” investors, rather than yield-seeking ones – and that he had already placed an order based on IPTs, but that the pricing nevertheless looked expensive for investors.

SEB reopened the Swedish euro covered bond market in February, placing a Eu1bn seven year covered bond issue that was priced at 15bp over mid-swaps and attracted Eu1.5bn of orders.

The lead syndicate official defended the leads’ approach to pricing and the adjustment to the spread, saying that there was nothing wrong with the deal and that the indications of interest process is still very much about price discovery, but is a much more open process than in the past, when investors could be sounded more discreetly.

The spread widening on the deal came down to the risk-on sentiment characterising the market today, he said, with investors consequently focussing on other deals in the market offering higher spreads rather than the very safe and high quality offering that Stadshypotek is providing.

France’s BFCM is out with a six and a half year senior unsecured deal today with guidance of the low 90s over, and Nationwide is bookbuilding for a subordinated issue, with guidance of 335bp-340bp over. Spain’s CaixaBank is selling a Eu1bn no-grow five year cédulas hipotecarias at 210bp over (see separate article).

The banker said that these deals did not necessarily represent competing supply in a narrow sense, but were still attracting investors’ attention and influencing the progress of Stadshypotek’s deal.