Nykredit Realkredit launched a Eu500m five year senior secured deal today (Monday), with the primary market otherwise quiet. Bankers said the pipeline also looked thin, but Sparkasse KölnBonn could surface soon and, longer term, Spanish deals are said to have been mandated.

Apart from Nykredit Realkredit’s senior unsecured issue, the primary market for financial institutions was quiet this morning. Several syndicate bankers also said they did not have any deals in the pipeline for launch this week and that blackouts could keep new supply at bay, although market conditions were said to be supportive.

However, Sparkasse KölnBonn went on a roadshow last week and would be a “logical” new issuance candidate this week, said one. European banks start releasing first quarter results this week, with SEB and Swedbank kicking off proceedings tomorrow (Tuesday).

“The market is in decent shape,” said a syndicate official. “I’m not expecting much supply but conditions are good so I would imagine there would be.”

Looking further ahead, two smaller Spanish issuers have mandated for covered bond deals, according to a syndicate banker. He said they would come after some marketing, and could still be two to three weeks away.

The re-election as Italian president of Giorgio Napolitano was mentioned as a factor supporting market access for peripheral banks, with Italian government bond yields, for example, falling in response to the development. There has been no peripheral benchmark covered bond issuance since 12 March, when CaixaBank sold a Eu1bn five year cédulas hipotecarias at 210bp over mid-swaps. The last peripheral benchmark before that was a Eu500m deal for Bankinter on 24 January

On Nykredit’s senior secured bond this morning, leads BNP Paribas, DZ Bank, Nykredit and UniCredit set initial price thoughts in the 110bp over mid-swaps area, guidance at 105bp over plus or minus 3bp, and then fixed the re-offer spread at 102bp over. Some Eu1bn of orders were gathered, according to a banker at one of the leads.

Senior secured bonds rank junior to traditional covered bonds but have a preferential claim over the capital centre they are issued out of, and have in the past been referred to as Junior Covered Bonds”. The instruments are used by Danish mortgage companies to help finance overcollateralisation to meet continuous LTV requirements in the event of falling house prices, although they can be used for a wider range of purposes following a legal change in December. (See here for previous coverage.)

A syndicate banker away from the leads said that at 102bp over mid-swaps the transaction came where a senior unsecured deal form Nykredit would have been priced.

“The deal offers some pick-up, looks attractive for investors,” he said.

“Previous senior secured transactions were somehow challenging because of the lack of understanding among investors of this ‘hybrid animal’,” he said. “But this does not seem to be the case anymore.”

The lead banker also said that the pricing was in line with senior unsecured levels.

A DCM official at a bank away from the leads said that initial price thoughts in the 110bp over mid-swaps area were what he would have expected. He mentioned as a comparable a Nykredit June 2017 senior secured issue that was priced at 200bp in May 2012. That issue was trading at around 95bp over mid-swaps before the new transaction was announced, he said.

The DCM official added that the new senior secured deal was well timed as Nykredit was seizing the opportunity offered by the open issuance window and with other banks having entered their silent periods.