Skandinaviska Enskilda Banken AB (SEB) built a “rock solid” order book for a Eu1bn long seven year issue yesterday (Monday), according to an official at the Swedish issuer, who said the euro market continues to offer more attractive pricing terms and volume access than its domestic market.

SEB’s new issue was the only euro benchmark covered bond brought to market yesterday and the first since Wednesday, when Eika Boligkreditt sold a Eu500m six year issue.

Leads BNP Paribas, Commerzbank, Credit Suisse, SEB and UBS priced the Eu1bn January 2023 issue at 18bp over mid-swaps, with the order book closing at above Eu1.3bn with 85 accounts. The leads had skipped initial price thoughts to launch the deal with guidance of the 20bp area.

“The covered bond market has undoubtedly been somewhat challenging in the last months, but at the same time it has offered patches of constructive opportunities,” said John Arne Wang, head of treasury management at SEB. “Our transaction today went quite well given these circumstances.”

In particular, Wang described a “rock solid” order book with strong real money interest as a highlight of the deal.

Banks were allocated 50%, asset managers 28%, central banks and official institutions 12%, and insurance companies and pension funds 10%. Accounts from Germany took 52%, the Benelux 18%, the UK 9%, the Nordics 7%, Switzerland 4%, Asia 3%, France 3%, southern Europe 2%, and central and eastern Europe 2%.

“This is not only a testimony of SEB as a high quality issuer,” said Wang, “but a strong order book combined with a healthy oversubscription is likely to ensure performance in the secondary market.”

A syndicate official at one of SEB’s leads said the new issue was quoted 2bp tighter this (Tuesday) morning.

Wang said the pricing of the new issue was in line with SEB’s expectations for a long seven year covered bond in current conditions and with what it had discussed with syndicate banks ahead of the trade.

“Our view is that covered bond spreads are somewhat elevated in general, but the euro market is less so than current pricing in the domestic market, and consequently offers more attractive pricing terms,” he added. “SEB typically raise funding in the covered bond market throughout the year, meaning that we ideally wanted to add some additional financing before year-end.

“Given that the euro market currently offers more attractive pricing terms and volume access than the domestic market, opting for issuance in our second core market was a natural choice.”

SEB’s last euro benchmark covered bond issue a Eu1bn seven year in June, which Wang noted was also sold while conditions in the Swedish market were challenging.

“At that time, the domestic market was selling off quite heavily, admittedly from – even at that time – fairly tight spread levels,” said Wang. “The weak performance has continued throughout the last few months and the market is likely to remain less active until the turn of the year.

“Several factors have exaggerated the negative market development, and I think there is good reason to expect a positive correction from January and onwards.”

Maureen Schuller, head of covered bond strategy at ING, noted that after SEB’s deal year-to-date euro benchmark issuance from Sweden totals Eu6bn, which is the highest annual supply since 2011.

“In our view Swedish covered bonds trade relatively closely aligned from an average issuer credit ratings perspective,” she added. “For that reason we continue to favour the stronger rated issuers, such as SEB, that offer a stronger pick-up versus core Eurozone alternatives from an issuer ratings perspective compared to issuers a little bit further down the rating scale.”