Sparebanken Vest Boligkreditt sold the first Norwegian covered bond of the year today (Wednesday), a Eu500m seven year deal that was priced tighter than expectations on the back of a Eu1.2bn book. Meanwhile, KBC sold its second issue of the year, a Eu1bn six year.

Sparebanken Vest leads Barclays, LBBW, Natixis and Swedbank launched the Eu500m no-grow seven year deal with initial price thoughts of the flat to mid-swaps area, moving to guidance of 3bp through. The re-offer was then set at 5bp through, with the leads building a final order book of Eu1.2bn.

Bankers away from the deal said the new issue was priced tighter than they expected, suggesting the execution benefited from the size being set from the beginning. They put fair value for the new issue at around minus 7bp-minus 6bp, seeing the issuer’s January 2019s at minus 9bp, mid.

“It’s a great outcome for them,” said one.

Syndicate officials away from the leads noted that the move from IPTs to the re-offer was one of the largest seen in recent deals. One suggested the move was excessive.

“To go from flat to less 5bp seems a bit of a stretch to me,” he said.

Another cited the size and quality of the order book as justification for the leads’ approach.

“You can see this deal is well oversubscribed,” he said, “so I think that justifies the move.”

A syndicate official at one of the leads agreed, noting that the initial price thoughts seemed fair to each of the leads and that it was the same starting point as a recent LF Hypotek trade, a Eu500m seven year priced at 4bp over mid-swaps on Thursday (16 April).

“Then the success of the bookbuilding was quick and solid, and it was able to support printing at minus 5bp,” he said.

The lead syndicate official added that he saw LF Hypotek’s April 2022s at minus 6bp.

“This is a success,” he said. “They are quite comparable and so to come a basis point inside of where LF Hypotek priced just last week is a great outcome.”

A syndicate official away from the lead said he was surprised that the deal, the first benchmark from a Norwegian issuer this year, “rather easily” printed inside LF Hypotek, given concerns over the Norwegian mortgage market.

“Apparently the Norwegian mortgage market is of no concern to investors,” he said, “which is worrying, because it shows that fundamentals may be out of the picture in this market.”

The lead syndicate official said that the issue had not come up in conversations with investors.

KBC also came to the market this morning, returning after having on 15 January sold a Eu1bn seven year deal at 2bp over mid-swaps.

Leads Commerzbank, KBC, Natixis, RBS and UniCredit launched the new Eu1bn six year issue with initial price thoughts of 5bp through, before setting guidance at 7bp through after having gathered Eu1.3bn of IOIs. The re-offer was fixed at minus 8bp on the back of Eu1.6bn of orders. The books closed at Eu1.75bn, with 60 accounts participating.

Syndicate officials away from the deal estimated fair value for the deal to be around minus 10bp, seeing the issuer’s January 2022 paper at 9bp, bid.

While citing both deals as being a success, a syndicate official away from the leads noted KBC’s execution was slightly slower than Sparebanken Vest’s and he suggested this may have been because the size was not fixed from the outset.

“This benchmark language leaves a little ambiguity, which can mean investors are not sure how to calibrate their orders to get their wishful thinking size,” he said. “That means some may be hesitant to come forward, which can slow the process a little.”

Meanwhile, bankers said the broader market appeared a touch weaker today and predicted that primary market activity would remain relatively slow in the coming weeks after a busy week last week, despite supportive conditions for covered bond issuers.

“Both these deals have achieved good results, offering relatively small new issue premiums,” said a syndicate official away from the deals. “It’s good to see that they’ve gone smoothly and the market is working.”