No new issues hit the market today (Wednesday) in contrast to a rush of supply yesterday that included the first Swedish issue of the year and a rare Spanish deal, with good reason seen for more Swedish euro moves but cédulas expectations still modest.

Länsförsäkringar

The cédulas transaction was a Eu1bn 10 year mortgage-backed issue for CaixaBank, which provided investors with the first new Spanish benchmark covered bond supply since newcomer Banco Mare Nostrum came to market in early January.

DCM bankers have been eager to bring Spanish issuers to market but the country’s banks have not been under pressure to oblige given what are said to be limited wholesale funding needs, and when they have been active their focus has tended to be on the senior unsecured market.

A syndicate official at one of CaixaBank’s leads does not expect the deal to herald a shift in supply dynamics in the covered bond market.

“CaixaBank confirms what we expected but doesn’t really change much,” he said. “Spanish banks still have limited funding needs. We know liquidity is good, but I don’t think it will trigger a wave of Spanish supply.”

Another syndicate official, meanwhile, said that more Nordic supply may yet emerge this week, after LF Hypotek’s deal.

In the market alongside CaixaBank were Bank of Ireland Mortgage Bank, with a Eu750m five year Asset Covered Security (ACS), and LF Hypotek, with a Eu500m no-grow seven year. (See here for coverage of BoI’s deal.)

Yesterday was a busy session in the FIG flow primary markets overall, with Italy’s Mediobanca and Banco Santander selling senior unsecured deals, for example. An Additional Tier 1 (AT1) issue for Belgium’s KBC Bank appears to be the main focus in the FIG market today.

Covered bond syndicate bankers suggested there was little in the way of concrete new issue projects being lined up for the rest of the week, but that the market would readily absorb further supply.

“Yesterday was a heavy session but maybe there’ll be more this week,” said one. “I don’t see why there wouldn’t be more deals – there isn’t any event risk and the market is good – but I’m not aware of anything.”

Another syndicate official said that he would expect further supply this week, naming the Nordic area as a potential source, and said that “the window is definitely open”.

“In terms of maturity five to seven years looks good, spreads are really tight and not offering much new issue premium, oversubscription has been good and the order books are of high quality,” he said.

CaixaBank drew the most demand of the three benchmark covered bonds in the market yesterday, pulling more than Eu2.6bn of orders to its cédulas hipotecarias.

Leads CaixaBank, Crédit Agricole, HSBC, JP Morgan and UBS priced the Eu1bn 10 year deal at 80bp over mid-swaps, flat to secondaries, around 10bp-15bp back of BBVA and Santander levels, and some 65bp through Spanish government bonds, according to a syndicate official at one of the leads.

The bonds trading some 2bp tighter yesterday after pricing, which is where they are today, he added.

He said that the order book for CaixaBank’s deal was of high quality, highlighting strong demand from foreign investors, with only 12% of the bonds going to Spanish accounts and Germany accounting for the biggest share of allocations by geography.

More than 160 accounts were in the order book. Germany and Austria took 26%, France 21%, the UK 16%, Spain 12%, the Benelux 9%, Asia 6%, Switzerland 4%, and others 6%.

Fund managers were allocated 55%, insurance companies and pension funds 18%, banks 17%, central banks 8%, and others 2%.

Länsförsäkinger Hypotek (LF Hypotek), meanwhile, sold the first Swedish benchmark covered bond of the year. Leads BNP Paribas, Nordea Markets, RBS and UniCredit built an order book in excess of Eu1.1bn and priced the Eu500m no-grow seven year deal at 16bp over mid-swaps, the tight end of guidance of the 18bp over area that followed initial price thoughts (IPTs) of 18bp-20bp over.

The deal is the first Swedish euro benchmark covered bond since the end of October, when SEB sold a Eu1bn seven year at 10bp over.

LF Hypotek’s euro deal coincides with a pick-up in activity in the Swedish domestic covered bond market, according to SEB analysts, who noted that new five year bonds for Nordea Hypotek and SEB got March off to a strong start.

They said that the 16bp over re-offer spread for LF Hypotek’s euro benchmark is equivalent to a Swedish krona asset swap spread of 35bp over, some 12bp inside where a domestic LF Hypotek September 2020 issue trades.

“With the euro bond even six months longer, this clearly shows that for Swedish covered bond issuers euro funding appears attractive compared to funding in Swedish kronor,” they said. “We therefore expect others to follow LF Hypotek’s example and direct covered bond supply to the euro market in the near term.”

Germany took 44.5% of LF Hypotek’s issue, the Nordics 22.4%, the UK and Ireland 8.7%, the Benelux 8.3%, Austria 6.4%, Switzerland 4.4%, France 4% and others 1.3%.

Banks took 47.9%, funds 29.8%, central banks and public institutions 10.1%, insurance companies 10%, and private banks 2.2%.