Sweden’s Stadshypotek set a new post-crisis tight for non-Eurozone seven year covered bonds with a Eu1.25bn issue at 2bp through mid-swaps on Monday, and an official at the issuer said the result was encouraging, even if technicals are in his eyes outweighing credit quality in relative pricing.

Thomas Åhman, deputy head of treasury at Svenska Handelsbanken, Stadshypotek’s parent, said that the timing of the new issue was based on the issuer’s usual policy regarding covered bond issuance in foreign currencies.

“When we are issuing covered bonds in currencies other than the Swedish krona, it’s not about raising new liquidity, it’s about long term diversification. But when we do that diversification we need to find windows where the euro market, for example, is at an all-in cost comparable to the Swedish market.

“This means that first we need to look at where we think spreads are in euros, and then you have the basis swap into the Swedish krona, and then you have spreads in the Swedish market. At this time we saw that euros was on a par with Swedish krona, and that’s why we decided to issue in euros.”

Åhman said that the tightening of the market on the back of CBPP3 had helped euro levels become competitive, but that while spreads had been getting lower the basis swap between Swedish kronor and euros had been going in the opposite direction.

“That is why it is so difficult to plan issuance in euros,” he added. “It’s getting a little bit three dimensional and these things are moving all the time.”

Swedish krona spreads had meanwhile been relatively stable, although slightly tighter over the past month, he said.

On Monday morning leads BNP Paribas, Deutsche, HSBC, Nomura and Svenska Handelsbanken went out with initial price thoughts of the low single-digits over mid-swaps, then set guidance at flat area, before fixing the spread at 2bp through, which Åhman said was in line with his initial expectations of somewhere around flat to minus something.

“But then of course it is a little bit harder to pencil that in as well, because we are not a euro-in, which means we are not going to have huge orders in our order book from the ECB,” he added. “Even though we clearly think that our credit is maybe much stronger than another covered bond issuer, you clearly see a difference in dynamics when the ECB is coming in for them and buying huge clips at almost any price. If you make a direct credit comparison between covered bonds, it’s quite clear that the market is pricing in technicals over credit quality.

“But even though we didn’t have the central bank support, we still had a really good order book with real money investors in it, which was of course really encouraging and we are really happy with the result.”

Åhman said that the Eu1.25bn issue size was in line with the issuer’s initial plans and its typical euro benchmark sizes.

The Swedish Covered Bond Corporation recently became the first Swedish issuer to use a soft bullet covered bond, a structure that has become common in many other jurisdictions. Stadshypotek continued with a traditional hard bullet structure for Tuesday’s deal, but is considering making the change, according to Åhman.

“We are thinking about that as well,” he said, “and there is a fair chance that it can happen, but we haven’t taken that decision yet.

“But as I see it, hard bullet or soft bullet, the market doesn’t seem to see a difference between them when it comes to pricing.”