Tight spreads tempted SEB to bring forward Q1 2014 issuance plans and launch a Eu1bn seven year benchmark yesterday (Monday), according to the bank’s head of treasury management, who suggested Swedish issuers may be able to print five year euro deals inside mid-swaps next year.

John Arne Wang, SEB

Market participants had been expecting further Nordic supply in the wake of third quarter results after Stadshypotek followed up on parent Svenska Handelsbanken’s results last Wednesday by launching a Eu1bn seven year benchmark on Thursday. Yesterday’s new issue from Skandinaviska Enskilda Banken (SEB) came after it had reported on Thursday.

John Arne Wang, head of treasury management at SEB, said that the issuer had decided to go ahead with a seven year euro benchmark before Stadshypotek’s deal was announced, but was not able to move before its Q3 supplement was updated.

“The euro market is for SEB the funding option where duration can be added, given that the domestic covered bond market typically can’t efficiently offer maturities beyond five to five and a half years,” he added. “A seven year benchmark just happened to be the maturity that best fitted our needs at this time and at the same time offered very attractive pricing relative to Swedish kronor.”

Leads Commerzbank, Crédit Agricole, Deutsche Bank, SEB and UBS priced SEB’s issue at 10bp over mid-swaps, after having taken some Eu1bn of IoIs at IPTs of the low double-digits and built a book of Eu1.4bn at official guidance of the 10bp area.

The re-offer spread was 1bp wider than a 9bp level paid by Stadshypotek on its Eu1bn seven year deal. A syndicate official at one of SEB’s leads said that the order book for the new issue would have supported a 9bp spread, too, but that 10bp was “definitely the wiser choice”.

“With a book of Eu1.7bn, Stadshypotek was probably more comfortable going into the high single-digits,” he added, “and we didn’t look at squeezing the book down to 9bp.”

He noted that, comprising 87 orders, SEB’s order book was more granular than Stadshypotek and also included more asset managers and central banks.

Banks took 58%, asset managers 19%, central banks and agencies 17%, insurance companies and pension funds 5%, and others 1%. Germany and Austria were allocated 38% of the bonds, the Nordics 19%, the Benelux 14%, the UK and Ireland 8%, France 7%, Switzerland 6%, Asia 4%, and central and eastern Europe 4%.

“This was a smooth and smart trade for everyone involved and an excellent outcome for the issuer’s second seven year covered bond benchmark of the year,” said another syndicate official at the leads. “The issuer decided to price at 10bp and showed that it cares about order book quality and secondary market performance.

“Globally, there isn’t really a psychological barrier around pricing through double-digits, as Stadshypotek proved last week, but there were a few accounts that had sensitivity around the 10bp figure and it was important to take this into consideration.”

Wang said that the 1bp wider spread paid by SEB can be explained by Stadshypotek having had first-mover advantage.

“The credit quality of SEB is certainly no less than that of Svenska Handelsbanken in terms of our covered bonds,” he said. “Our focus was primarily on the outright level, and less so on whether we would end up pricing on a par with Svenska Handelsbanken or 1bp wider.”

Indeed Wang said that the plan to issue a euro benchmark was brought forward from a likely Q1 2014 timing due to the prevailing favourable conditions.

“We had more or less fulfilled our needs by early in the third quarter,” said Wang. “However, we accelerated our covered bond issuance plan for the first quarter, with the basis moving sharply lower and the euro covered bond market also seeming somewhat more undersupplied than was previously expected.

“Although the market might find some price resistance at current levels,” he added, “medium to long term, I actually expect the euro covered bond market to, at least for the top issuers, tighten further. It would not surprise me if we see a Swedish issuer print below mid-swaps flat for a five year in 2014.”