Covered bond issuers seized the opportunity presented by a strong market opening this week to frontload funding, upsize plans and, in some cases, print their largest deals in years, citing the importance of making the most of the good times while they last with an uncertain year ahead.

Some Eu12.5bn of euro benchmark covered bond supply has been issued across nine deals since markets opened on Tuesday, with deals progressing smoothly and demand remaining high throughout the week.

No deals were launched today, with parts of Germany, Spain and other European countries closed due to public holidays marking Epiphany. Swedish Covered Bond Corporation announced a mandate for a seven year euro benchmark covered bond this morning.

A banker at one of leads Citi, Goldman Sachs, LBBW, Nordea and UBS said the deal could be launched early next week. It will be SCBC’s first non-domestic benchmark covered bond since January 2016, when it sold a Eu1bn February 2021 issue, which was seen trading pre-announcement at around flat, bid.

“Today is a welcome break after a very busy start,” said a syndicate banker. “Next week will surely be just as active, and issuers are already booking their places.”

Market participants deemed it particularly noteworthy that deal sizes have this week increased from the typical Eu500m-Eu1bn trades seen towards the end of last year, with some of the first movers able to print their largest deals in quite some time.

“It is the usual new year party in the market, except this time people seem more concerned about when the good times will come around again,” said a syndicate banker. “With that in mind, people are more determined to enjoy it while it lasts, and that means getting deals done now and getting them done in size.”

On Tuesday, Caffil issued its largest ever covered bond, printing a Eu1.5bn 10 year issue, while on the same day LBBW sold its first Eu1bn-sized deal since September 2015 and the largest German Pfandbrief since last March, a Eu1bn seven year.

On Wednesday DNB Boligkreditt – offering the first Nordic euro benchmark of the year for the second year in a row – printed the largest Norwegian deal since 2012.

“If you look historically, you will see that DNB often does a deal in January, but this year we actually had no rush at all,” said Thor Tellefsen, head of long term funding at DNB. “We had a plan to do a transaction in the first three weeks of the year, and when we came to work this week we did not expect that we would necessarily do a deal right away.

“But the markets opened strong on Tuesday and looked even better than we had expected, with the deals out there all going well, so we collected a lead group and told them we could go either this week or next. The leads also wanted to go on Wednesday, and it turned out to be a good day.”

DNB Boligkreditt leads HSBC, LBBW, NordLB and Société Générale launched the Norwegian bank’s five year issue on Wednesday morning with guidance of the 5bp over mid-swaps area, before revising guidance to the 2bp area having taken around Eu2.5bn of orders. The spread was then fixed at flat to mid-swaps and the size at Eu2bn, with the book closing at over Eu3.25bn.

Banks were allocated 58% of the deal, asset managers 22%, central banks and official institutions 16%, and insurance companies and pension funds 4%. Accounts from Germany and Austria took 45%, France 14%, the Nordics 13%, the Benelux 9%, the UK and Ireland 7%, Asia 7%, and others 5%.

“We are very pleased, as the deal exceeded our expectations both on size and price,” said Tellefsen. “We tightened the price quite a lot but the order book continued to grow very quickly.

“It is also a long time since DNB last printed Eu2bn.”

DNB’s deal is the tightest-priced euro benchmark from Norway since April 2015, and is the largest covered bond from a Nordic issuer since DNB sold a Eu2bn issue in March 2012.

Tellefsen said that DNB Boligkreditt had initially been targeting a smaller transaction, and said the decision to take Eu2bn out of the market did not reflect a deliberate frontloading of the issuer’s funding.

“We planned for a maximum Eu1.5bn transaction,” he said. “But to be honest, when you have an order book of Eu3.3bn and a deal of just Eu1.5bn, you have a big allocation problem.

“We felt the price was good, the orders were there, so it was purely the very strong demand that made us decide to print Eu2bn.”

Helaba yesterday (Thursday) issued its largest ever Pfandbrief offering – and the largest Pfandbrief offering from any German issuer since 2005, according to some market participants – selling a Eu2bn dual tranche issue that comprised a Eu1.25bn five year tranche and a Eu750m 10 year tranche.

Martin Gipp, head of funding at Helaba, told The CBR that the issuer has higher covered bond funding needs this year than in previous years.

“As the private placement market still is slower than in the past, the majority of Pfandbrief funding has to be generated in the public market,” he said. “As the market conditions from the very start of the year were very supportive, we decided to come to the market earlier than in the years before.”

Gipp said it had therefore also made sense for Helaba to take a larger than usual size out of the market, given the favourable conditions.

“The last years have always seen phases of higher and lower market activity due to external/geopolitical events,” he added. “That event risk still exists, so we feel very comfortable with this frontloading exercise.”

Landesbank Hessen-Thüringen (Helaba) leads Commerzbank, Crédit Agricole, DZ, Helaba, HSBC and UBS launched the five year tranche with guidance of the mid-swaps minus 8bp area and the 10 year tranche with guidance of the minus 6bp area.

The spread of the five year tranche was ultimately set at minus 9bp and the 10 year at minus 7bp, with combined books in excess of Eu2bn. The size of the five year tranche was later fixed at Eu1.25bn and the 10 year at Eu750m.

“The deal went very well and ticked all boxes of our expectations, with a total deal size of Eu2bn, very granular order books, pricing at the tight end of the price range and good non-domestic participation,” said Gipp.

The combined final book was “well above” Eu2.4bn with over 75 accounts. Central banks and official institutions took 45% of the five year tranche, banks and financial institutions 42%, and fund managers 13%. Accounts from Germany bought 71%, Asia 10%, the Benelux 9%, Austria and Switzerland 6%, France 1%, the UK 1%, and others 2%.

Of the 10 year tranche, central banks and official institutions were allocated 47%, banks 32%, fund managers 11%, and insurance companies and pension funds 10%. Accounts from Germany took 89%, Asia 6%, Austria and Switzerland 3%, and others 2%.

Syndicate bankers expect the trend towards larger issuance to continue as long as investor demand allows.

“I’m not sure it’s so much a considered effort to do bigger deals, at least not on the part of all issuers,” said one. “But when the orders are there and the spreads are good, why not?”

The spreads of this week’s deals have mostly held up under the weight of supply, bankers said, with three deals – those of LBBW, CaixaBank and Coventry Building Society – trading tighter, while the rest were seen quoted at around re-offer.

“Most of the deals are hovering around where they were priced, with a slight tendency to the weaker,” said one. “But none are giving any reason for concern.”