Nordea Bank Finland has become the first issuer to publicly announce a covered bond mandate in 2014, but the market is open to a range of jurisdictions and with Italy and Spain starting the new year on a strong note conditions are said to be conducive for peripheral supply, too.

Nordea Bank Finland

The first two working days of the year are set to lapse without any new benchmark FIG supply, as many market participants are still away from their desks and issuers are also said not to be in any great haste to announce firm plans.

However, syndicate bankers expect primary market activity to kick off next week given a positive tone to the market and a lack of scheduled events or data releases that could derail anticipated market developments.

Australia’s ANZ Banking Group yesterday (Thursday) announced the first FIG mandate of the year, a US dollar transaction expected to be in senior unsecured format, while Nordea Bank Finland has mandated BNP Paribas, HSBC, Nordea and UniCredit for a euro benchmark covered bond.

“Nordea is a well established name but announced the mandate to give it time to engage with investors on maturity preferences,” said a lead syndicate official.

Monday is a public holiday in parts of Europe, so Tuesday is a more likely launch date for a deal, he added.

A deal in the five to 10 year maturity range is under consideration, although the issuer already has a February 2021 benchmark outstanding so a seven year is unlikely, according to lead syndicate bankers.

That issue is trading at around 7bp over mid-swaps, with May 2019s and January 2020s at 4bp over and 6bp over, respectively, suggesting single digit pricing for a new five year deal, said a syndicate official on the mandate.

The level of new issue premium remains to be seen, he added, depending on the size and maturity targets and with no other deal priced in 2014 to give guidance. Nordea issuer has announced a benchmark size, but typically sells Eu1bn minimum deals. It was the third issuer to launch a new benchmark covered bond in euros last year, doing so with a Eu1.25bn seven year on 8 January, after France’s Caisse de Refinancement de l’Habitat and Italy’s UniCredit came to market.

Syndicate bankers expect further covered bond issuance next week besides a Nordea deal despite a lack of mandate announcements, saying there is little need to publicise issuance plans before projects become more concrete and imminent, and that the market is open to low beta and higher yielding supply.

However, an onslaught of deals is not necessarily on the cards, said one, given prefunding in the latter part of 2013 and with issuers also being interested in tapping the senior unsecured market.

In covered bonds, French and German issuers are “classic candidates”, while an Australian issuer is said to be rumoured to be considering a euro deal and Italian and Spanish banks have also been mentioned as sources of new supply.

Indeed, syndicate bankers said that the hunt for yield will carry over from last year as a major market driver, and that conditions are more favourable toward higher yielding supply than low beta names.

“Nordea is a typical name to open the market, but Spain had a fabulous start in the new year,” said one syndicate banker, noting that Bonos rallied particularly strongly in the short end, tightening by around 30bp in two years versus swaps.

“The theme is still the same, anything with spread and yield is compelling,” he said.

Italy has also performed well, with yields down some 15bp in five years and 10 years on the back of good domestic buying and some international follow-through, according to another syndicate official.