SCBC adjusted its pricing expectations in the face of a widening covered bond market when printing a Eu750m five year issue yesterday (Monday), according to an official at the issuer, who said the outcome was a strong result amid tough conditions in international and domestic markets.

Swedish Covered Bond Corporation (SCBC) leads BAML, Commerzbank, LBBW, Nordea and UBS skipped initial price thoughts to launch the Eu750m (Skr7.05bn) five year issue with guidance of the mid-swaps plus 12bp area, before fixing the spread at 11bp on the back of Eu900m of orders. The books were closed at around Eu900m.

“We are very pleased with the transaction and I think we did a good job, considering the difficult market conditions,” said Fredrik Jönsson, head of treasury at SBAB, SCBC’s parent.

He said the issuer had been targeting either a Eu750m or a Eu1bn deal and that the price was in line with its expectations, after the issuer had reviewed secondary spreads on Monday morning. These included the most recent Swedish deal, a Eu1.25bn five year issue from Swedbank Hypotek that was priced at 7bp over mid-swaps on Tuesday of last week and was yesterday quoted at 8bp-9bp, bid.

“We looked at various comparables, including Swedbank’s transaction, and we saw that the market was clearly wider and adjusted our expectations,” he said. “Markets move, and sometimes you have a market going tighter and sometimes you have a market going wider, so you have to adapt to that. It is also important to consider the long term relationship between yourself and your investors, which of course also will influence how you proceed when you are in deal mode.

“Obviously all issuers want to come and price as tight as possible – that is our job – but we cannot control market developments. Given where the market was today, this was a very strong outcome.”

Jönsson said SCBC decided to go ahead with the deal in spite of the softer market opening on Monday to meet its funding programme after concluding it is not a given that the market will improve within the next few months.

Prevailing basis swap levels also meant that issuing in euros was favourable for Swedish issuers, he said, while opportunities are currently limited in the domestic market.

“If you do the comparison it is in line or even a couple of basis points cheaper to do euro funding and swap that into Swedish kronor than to use the Swedish krona market,” he said. “Today there is some softness in the Swedish market as well, so it is good to have several markets that we can use.”

Almost 50 accounts were in the final order book, with banks taking 58% of the deal, central banks and official institutions 26%, fund managers 10%, corporates 5%, and others 1%. Accounts in Germany and Austria were allocated 53%, the Nordics 22%, Switzerland 8%, the Benelux 7%, the UK 4%, France 3%, and others 3%.

Jönsson added that SCBC would likely fulfil its funding needs for the rest of the year with small to medium-sized deals in the domestic market.

“We have covered around 90% of our needs for the year and we are ahead of our funding plan for the year,” he said. “We are now in a very good funding situation.”