DNB Boligkreditt is issuing a debut sterling covered bond today (Monday), a five year floating rate note offering some diversity relative to recent three year FRN supply in the currency. The euro covered bond market was meanwhile quiet this morning.

The Norwegian bank’s inaugural sterling issue is being sole-led by Nomura and is expected to be priced this afternoon. The lead went out with price talk of the three month Libor plus 28bp area for a benchmark transaction that is expected to be around £250m.

A syndicate official away from the leads said that he was a little surprised at the timing, with the deal coming after a busy 2015 for sterling covered bonds – DNB’s deal comes after some £3.4bn (Eu4.6bn) of sterling covered bond supply so far this year. However, all of this has been in the form of three year floating rate notes (including a tap of a three year FRN originally issued in October), and another syndicate official away from the leads noted that DNB’s deal offers a different maturity as well as being from a new name.

The two syndicate officials said the pricing appeared fair. One noted that although the level of 28bp over for five years is only a little wider than 26bp over for a Leeds Building Society FRN last week, the majority of year-to-date sterling supply – from Barclays, HSBC and three Canadian issuers – has been three year FRNs priced at around 19bp over.

“Versus those it is a bit more in line,” he said.

A lead syndicate official noted that a Lloyds 2019 issue sold in July was bid at 24bp over and taking into account that Lloyds came in mid-January with a 2018 FRN at 19bp over fair value of the new issue was around 26bp over, implying a new issue premium at 28bp over around 2bp.

He said that the pricing offered DNB funding flat to slightly through what it might achieve with a euro benchmark, and one of the bankers away from the leads agreed. He said that the 28bp sterling level is equivalent to flat to 1bp through mid-swaps for a euro benchmark and that a DNB October 2019 euro benchmark issued in September at minus 3bp was at minus 2bp today, so that, taking into account a new issue premium, a new euro benchmark would come wider than the sterling FRN.

The lead syndicate official noted that as well as the sterling trade being competitive, it offers DNB diversification given that it has not issued a sterling covered bond before, although he noted that it has issued senior unsecured in sterling.

The euro market was meanwhile quiet, with the market remaining empty and the pipeline thin – the only issuer officially in the pipeline is NordLB Covered Finance Bank, which is on a lengthy roadshow. Syndicate officials nevertheless said that market conditions remain favourable.

“The market is in half-decent shape given our friends in Athens are trying their absolute best to cause a scene,” said one. “The backdrop is still pretty solid, in the sense you still have a number of investors out there who have to put money to work.

“If a new issue comes to market it goes down extremely well, and you can see that on the senior side quite clearly. But supply is quite limited.”

Santander’s UK subsidiary, Abbey, was in the sterling market this morning with a £750m five year senior unsecured issue that bankers said was going very well in the wake of a very successful £650m five year senior unsecured issue from JP Morgan last week.

However, another syndicate official noted that with a slightly weaker opening today, the market was more favourable for defensive trades.