OP Mortgage Bank achieved a “very, very nice level” on a Eu1bn seven year deal yesterday (Thursday) while DG Hyp found a long nine year maturity a suitable fit on Wednesday, according to those at the issuers responsible for the trades, which were the only benchmark covered bonds this week.

OP’s new benchmark was its first since a Eu1.25bn seven year in May 2016.

“It was good timing as the market was in good condition, as we have seen in other deals in covereds and in senior,” Lauri Iloniemi, head of group funding at OP-Pohjola, told The Covered Bond Report. “The other reason was that it was about time to revisit the market.

“You always have to make a choice between senior or covered,” he added, “and we just thought that it was an ideal time to go for a covered. We had seen quite some senior issuance out of the Nordics lately.”

The Finnish issuer met investors last week and Iloniemi said that, while he had been open to either a seven or 10 year benchmark, feedback was biased in favour of the shorter maturity, which helped decide the ultimate outcome.

“It fitted our maturity profile pretty well,” he added, “and it is where the demand is.”

Leads BNP Paribas, DZ Bank, LBBW and OP priced the issue at 4bp through mid-swaps on the back of “well above” Eu2bn of demand, following initial price thoughts of the mid-swaps flat area and revised guidance of the minus 2bp area. Bankers put the new issue premium at around 4bp.

Iloniemi said the re-offer spread of 4bp through mid-swaps was “at the better end of my expectations”.

“The best case was around 3bp-4bp through,” he added, “and 4bp was a very, very nice level. The book was very solid, with over Eu2bn even after we tightened by 4bp, and so technically we could have gone even tighter, but you always need to leave something on the table for the investors as well.”

OP benchmarks are either for Eu1bn or Eu1.25bn and Iloniemi said that Eu1bn was the size targeted from the outset, since Eu1.25bn would clearly have been possible given the size of the order book.

“All in all it was a very successful, very smooth deal,” he added, “with many investors, over 70 even when we tightened to minus 4bp. It’s one of those deals where at no stage during the process were we worried even for a minute.”

OP Mortgage Bank is one of the longest established issuers in a Finnish jurisdiction that has recently been joined by Sp Mortgage Bank and The Mortgage Society of Finland, while Nordea has rejigged its Finnish issuance and Danske could do likewise.

“It is a positive sign in the big picture,” said Iloniemi, “because it creates a bit more interest when you have issuance a bit more often out of a jurisdiction than previously.”

DG Hypothekenbank sold its Eu500m long nine year mortgage Pfandbrief on Wednesday, the first new euro benchmark covered bond since a week earlier.

Patrick Ernst, head of asset-liability and head of treasury at DG Hyp, said the issuer chose the long nine year maturity partly because it best fit the needs of its mortgage collateral pool.

“Besides, we have seen only two new German benchmarks with a 10 year maturity in 2017 so far,” he told The CBR, “so we were convinced it could be an interesting maturity for a lot of investors.”

Leads BayernLB, Commerzbank, Crédit Agricole, DZ and UBS priced the Eu500m no-grow September 2026 Pfandbrief at minus 11bp on Wednesday, down from initial guidance of the minus 7bp area and revised guidance of the minus 9bp area.

The book closed at over Eu1bn with over 40 accounts. Banks were allocated 43% of the deal, central banks 29%, asset managers 20% and insurance companies 8%. Accounts from Germany bought 64%, the Nordics 13%, Asia 10%, Switzerland 5.5%, the UK 5.5% and others 2%.

“This was a great success and we are very pleased with the high quality of the order book,” said Ernst.

DG Hyp sold three benchmark Pfandbriefe last year, each Eu500m-sized, and Ernst expects the issuer to be similarly active in 2017, in spite of a challenging environment in the commercial real estate market in which its business is focussed.

“Nevertheless, we are cautiously optimistic in regards to our new business development in 2017,” he said, “and still expect to issue between Eu1.5bn and Eu2bn of covered bonds to refinance new business in commercial real estate finance.”

Photo: OP-Pohjola offices, Helsinki; Credit: Arto Alanenpää/Wikimedia Commons