Nordea Bank Finland yesterday (Tuesday) reopened the euro benchmark covered bond market with what is being seen as a “blow-out” Eu1.5bn five year trade, which according to a lead banker is the tightest Nordic issue since 2008 and achieved a target for size while leaving room for performance.

Nordea Bank Finland

Leads Barclays, Deutsche Bank, Nordea and RBS priced the Eu1.5bn deal at 7bp over mid-swaps, after initial price thoughts of the 10bp over area and then guidance of the 8bp over area. At 7bp over, the deal incorporated a “minimal” new issue premium of 2bp versus fair value, said the lead syndicate banker, who noted that the level of oversubscription and the high quality order book allowed the issuer to size a Eu1.5bn deal.

Some Eu3bn of demand was registered for the transaction, which the lead syndicate official said made for the largest book for a covered bond that has priced inside 8bp since 2008. At Eu3bn, the book was also one of the largest for any euro benchmark covered bond this year.

A syndicate banker away from the deal said it was a “blow-out” and that by pricing only 1bp inside guidance and opting for a Eu1.5bn deal despite a book that would have allowed more the issuer has paved the way for follow-up deals and an outperformance of the deal versus the broader market.

Another syndicate official on Nordea’s deal said that the transaction went very well and was a good way to reopen the market. Before yesterday’s deal there had been no new euro benchmark covered bond supply since the end of July, when Canadian Imperial Bank of Commerce sold a Eu1bn five year at 9bp over.

“It was a really good deal,” said the syndicate banker. “The issuer could have done Eu1bn flat to the curve, but it wanted size, and Eu1.5bn at 7bp is outstanding.”

By pricing the deal at 7bp the issuer “killed two birds with one stone”, he added, accommodating investor demand and allowing room for performance.

“We’re really pleased,” he said.

Tim Skeet, managing director, financial institutions group, RBS, said that it was an accomplished transaction and noted that it is the first for the Nordea group since the retirement of Fanny Borgström, the former head of group funding and a veteran of the Nordic and wider European bank funding scene.

“It was a sure-footed step for the issuer as it reasserts its credentials in the market,” he said.

The transaction was one of four new issues to hit the FIG flow market in the first two days of the week, coming alongside a senior unsecured deal for Sparebanken 1 SR Bank and after senior unsecured deals for BNP Paribas and Svenska Handelsbanken on Monday.

“We knew market conditions were conducive and Monday was a good day with the senior deals,” said the lead syndicate official about the timing of Nordea’s covered bond.

The mandate was announced on Monday afternoon to give investors time to decide whether they would want to participate and provide feedback, which pointed to a spread in the high single-digits, he added.

However, because of a weaker market opening yesterday morning and the issuer’s desire to print a sizeable deal the leads opted for an initial starting point of the 10bp over area, according to the syndicate official.

The book comprised 126 accounts. Germany and Austria were allocated 47%, the UK and Ireland 16%, Nordics 10%, the Benelux 9%, Switzerland 7%, the Middle East and Asia 6%, eastern Europe 3%, and others 2%.

Banks took 48%, fund managers 26%, central banks 19%, insurance companies and pension funds 4%, and corporates 3%.