DNB is pricing a Eu1.5bn five year covered bond on the back of strong demand today (Tuesday), with a banker on the deal saying it was pitched at a level that attracted some of the real money demand that had been underrepresented in recent supply given tight levels.

DNB Boligkreditt’s deal is the latest Nordic benchmark covered bond to hit the market as issuers from the region emerge from blackouts. Stadshypotek recently priced a Eu1bn seven year at 9bp over, which was followed by a Eu1bn deal in the same maturity from SEB at 10bp over last Monday (28 October).

A roadshow for National Bank of Canada is the only mandate in the public deal pipeline despite what bankers said are favourable market conditions. However, further deals could very well emerge from issuers making opportunistic moves to lock in tight spreads, and French and Spanish supply has been mentioned as a possibility. Spanish banks could be more interested in tapping the senior unsecured market, however, said one syndicate banker.

A deal from Norway’s DNB had been expected by many market participants, and the mandate was announced yesterday (Monday) afternoon. Leads BNP Paribas, Deutsche Bank, HSBC and LBBW began marketing the deal this morning at initial price thoughts of the high single-digits over mid-swaps, which brought in more than Eu1.5bn of indications of interest. Guidance was then set at the 8bp over area, with the spread eventually fixed at 7bp over and some Eu2.2bn in the order books pre-reconciliation.

The level of demand clearly exceeds that for the Stadshypotek and SEB transactions, which drew some Eu1.6bn and Eu1.4bn of orders, respectively, and was noted by a syndicate banker away from the deal as being among the largest for recent supply, with nearly Eu2bn of orders for a Eu1.5bn Royal Bank of Canada issue from 23 October next in line.

“I hope the size of the deal will be reasonable,” he said.

Syndicate bankers away from DNB’s transaction said it had gone well, unsurprisingly so, and saw the level as fair to arguably somewhat cheap.

One said that the starting point was “fair to marginally conservative”, citing a January 2018 DNB issue at flat and a June 2019 deal at 5bp over, and that the new issue definitely offered a pick-up to begin with, although this was necessary.

Another said he would have seen the new deal coming 1bp-2bp tighter, comparing the re-offer spread with where the recent Swedish seven year issues came and the mid-swaps flat level where DNB’s January 2018s were bid pre-announcement, and that this suggests the transaction was skewed towards size rather than price.

A lead syndicate official said the deal was not pitched conservatively, but at a level that brought back real money demand that had been underrepresented in recent supply because of tight levels.

“There’s a bit of a comeback of real money,” he said.

Secondary levels have “gone way too tight”, he said, noting that some Pfandbriefe are trading at KfW levels. Pricing new issues is not just a question of adding a few basis points’ new issue premium, but finding out where demand lies, he said.

The curve between five and seven years is very flat, he added.

At 7bp over, DNB’s deal is coming with a new issue concession of some 4bp, he said.

The new issue is DNB’s second euro benchmark of the year, after a Eu1.5bn five year in January that was priced at 13bp over mid-swaps.