Demand for a Eu1.25bn five year Swedbank covered bond on Tuesday exceeded expectations against an inauspicious backdrop, according to an official at the issuer, who said that the pricing also compared favourably with what has been achieved on other recent trades.

Leads Danske, Deutsche, SG, Swedbank and UBS launched Swedbank Hypotek’s Eu1.25bn (Skr11.775bn) five year deal with initial price thoughts of the mid-swaps plus 10bp area, before moving to guidance of the 8bp area after having gathered orders of over Eu1.3bn. The spread was set at 7bp before the books closed at Eu1.6bn.

Stefan Abrahamsson, funding officer at the long term funding desk at Swedbank, said the issuer went ahead with the deal despite the challenging conditions as it does not expect the market to improve this year.

“We are very pleased with the result, especially given the market sentiment,” he said.

More than 80 accounts were present in the final order books, with banks allocated 59%, central banks and official institutions 20%, fund managers 15%, corporates 4%, and others 2%. Investors from Germany and Austria took 46%, the Benelux 20%, the Nordics 11%, the UK and Ireland 9%, France 6%, Switzerland 4%, Asia 3%, and others 1%.

“We saw there were slightly fewer participants this time than in our previous transactions, and a slightly smaller order book, but that is in line with how the market has been for a while,” Abrahamsson said. “In light of that, the order book exceeded my own expectations, with the size and granularity as well.”

He said that the final price in particular represented a good result, compared with recent trades.

“We paid a new issue premium of 6bp-7bp, and that is at the tighter end of the range in the deals we have seen,” Abrahamsson said. “Premiums have come up in the last couple of weeks, so we are pleased.”

Syndicate officials away from the deal noted that the deal came substantially wider than what Swedish peers achieved previously, with SEB having priced a Eu1bn seven year at 3bp through mid-swaps on 9 June, but they said this was to be expected given market conditions.

“The market has deteriorated substantially in the last one and a half months, and only in the last two weeks has it widened a couple of basis points further,” Abrahamsson said. “You cannot also, for example, compare this deal to our seven year in March, which came at minus 5bp and on which we basically paid no new issue premium, because this is a totally different market sentiment.”

Abrahamsson added that the pricing was equivalent to what the issuer could have achieved in Swedish krona, noting that the domestic market and euro market are currently roughly in line. However, he said the domestic market, like the international market, did not offer easy opportunities.

“It has been quiet in the domestic market in the last couple of weeks,” he said. “We have seen the spread has widened out, in line with international credit spreads.

“We are approaching the end of the year and I expect both the domestic market and the international market will be fairly challenging for the rest of the year.”

The new issue is Swedbank’s second euro benchmark covered bond of the year, while the issuer has also sold a $1bn five year covered bond, in May, and two senior unsecured euro benchmarks, the most recent a Eu500m five year floating rate note on 11 August. Abrahamsson said the issuer is now ahead of its funding plan.

“We will continue to monitor the market, but for the time being we are very satisfied with what we have achieved so far,” he said.